The number of available jobs in the US shrank more than expected in July, an indication that demand for workers continues to wane amid a cooling labor market.
Job openings fell in July for the second consecutive month to an estimated 7.67 million, from 7.91 million in June, according to new data released Wednesday by the Bureau of Labor Statistics.
That’s the lowest number of openings since January 2021.
Economists were expecting that the July postings would total 8.1 million, according to FactSet consensus estimates.
Wednesday’s data is the first in a series of critically important economic metrics released this week about the US labor market, culminating with the Friday jobs report. With a hotly anticipated rate cut just two weeks away, Wall Street and Main Street are intently focused on whether a weakening labor market could mean a jumbo-sized cut from the Federal Reserve.
The July Job Openings and Labor Turnover Survey report “confirms the picture of the labor market that we’ve been seeing for a little while,” Oliver Allen, senior US economist at Pantheon Macroeconomics, told CNN in an interview Wednesday. “The labor market was looking very tight in a lot of 2023 and into the start of this year, and now it’s looking much more balanced.”
The worry, however, is whether the scales are tipping in the opposite direction.
“It’s the direction of travel now, which is the more concerning thing,” he said. “As much as the Fed might not want to see more deterioration, the simple fact is they have already raised rates a very long way, left rates at a high level for quite a while, and monetary policy obviously operates at a lag.”
“So, I think some further deterioration is already in the pipeline,” he added.
All eyes are on the labor market
Job openings, which serve as a measurement of labor demand, have come down significantly from their record highs when the US economy was roaring back from the pandemic and the need for workers outstripped the immediately available supply.
As the labor market has slowed, it’s come back into balance: There are now nearly 1.1 jobs available for every person looking for one. That ratio, which peaked at 2.03 in March 2022, hasn’t been this slim in more than three years.
Although the easing of job gains is something that has been expected, fears have grown recently that the labor market isn’t simply bending under the weight of Federal Reserve inflation-busting interest hikes — but it’s actually breaking.
The monthly jobs report for July showed gains of just 114,000 — far below expectations — and the unemployment rate shot to 4.3% from 4.1%. Separately, annual labor market data revisions showed job gains for the year ending March 2024 were less robust than initially thought.
“The July jobs report was obviously a big turning point in terms of perceptions of the labor market and the near-term prospects for the economy,” Allen said.
Concurrently, inflation has greatly subsided, putting the Federal Reserve just weeks away from what is likely the first interest rate cut since the central bank began its inflation-busting tightening cycle more than two years ago, all eyes are on the slew of labor market data being released this week.
However, those looking for some reassurance that the labor market is cooling at a sustainable level didn’t get that clarity from Wednesday’s report, said Robert Frick, corporate economist with Navy Federal Credit Union.
“The labor market continues to soften and is about back to pre-pandemic levels; the question is, does the trajectory continue and threaten the expansion, or will it level off?” Frick wrote in commentary issued Friday. “It may not be the deciding factor for a deeper Fed cut at the end of the month, but it adds to the case.”
‘Haggard but healthy’ labor market
The JOLTS report, although more backward-looking than most of the data, provides a critical look at the churn within the labor market and whether turnover remains at healthy levels.
The scaling back in job postings was most pronounced in sectors such as trade (particularly in transportation, warehousing and utilities), state and local government, and healthcare, BLS data shows.
In July, hiring activity picked up after having plummeted the month before, with 5.52 million hires versus 5.25 million; and the number of people voluntarily quitting their job held fairly steady at 3.28 million versus 3.21 million in June, according to seasonally adjusted data released Wednesday.
“This latest JOLTS Report revealed a haggard but healthy labor market in the last mile of the Fed’s tightening cycle,” Noah Yosif, chief economist at the American Staffing Association, wrote in commentary issued Wednesday. “Tepid momentum in hiring and layoffs suggests that employers remain reluctant to raise headcount without a substantial deceleration in borrowing costs. At the same time, employers fear a repeat of labor shortages from years past, and many are attempting to weather the storm with their employees.”
The quits rate, which measures voluntary separations as a percentage of total employment, held at 2.1%, underscoring the labor market’s shift from “Great Resignation” to the “Great Stay,” Julia Pollak, ZipRecruiter’s chief economist, wrote on Wednesday.
“Job switchers’ prospects have cooled in recent months — smaller pay bumps, less opportunity to negotiate offers, fewer signing bonuses, and less attractive jobs overall — so it’s not surprising that workers are choosing to stay put when they can,” Pollak said, referencing a recent survey of new hires conducted by ZipRecruiter.
While openings, hires and quits show a labor market that’s on stable ground, Wednesday’s JOLTS report wasn’t free of red flags: Layoffs and discharges spiked in July to 1.76 million, the highest monthly level since spring of last year, when tech layoffs were surging.
Despite the leap — which was driven in part by workers shed in the leisure and hospitality industry — the layoffs rate remained within the range seen during the past year and below historical averages, BLS data shows.
That aligns with other measurements of unemployment activity remaining relatively muted in recent weeks, specifically weekly jobless claims data.
Economists have attributed the rise of the unemployment rate to more people entering the labor market looking for work but running into lower levels of hiring. A sharp increase in layoff activity, however, could trigger an economic downturn, they’ve noted.
