Amidst growing speculation about the trajectory of the US labour market, the latest data reveals a substantial decline in job openings, hitting the lowest point in more than two years.

The report, released by the US labour department’s Job Openings and Labour Turnover Survey, indicates a cooling labour market and potentially paves the way for the Federal Reserve to hold off on further interest rate increases for the remainder of the year.

In July, job vacancies dropped to 8.8 million, a decline from June’s figure of 9.2 million, as reported on Tuesday.

This downturn was unexpected, as economists were anticipating around 9.5 million job openings, according to Refinitiv. The recent data reflects the lowest level since March 2021, signaling a notable shift in labour market dynamics.

Although job openings remain higher than pre-pandemic levels, the downward trend over the past few months reflects a deceleration in the labour market’s momentum.

Of note, the number of voluntary quits also decreased, indicating that workers perceive fewer opportunities within the job market. However, layoffs remained steady at 1.6 million, and new hires experienced a slight decrease from 5.9 million to 5.8 million.

Is there labour market strength?

Economist Daniel Silver from JPMorgan interpreted the data as a sign of ongoing labour market strength but highlighted that the current conditions exhibit “less extreme tightness” compared to previous years.

On the upcoming Friday, the labour data for August is set to be released, with forecasts suggesting another reduction in the pace of monthly job growth.

In response to Tuesday’s data release, the two-year Treasury yield, known for its sensitivity to changes in monetary policy expectations, dropped by 0.12 percentage points to 4.89 percent. Additionally, the benchmark 10-year note yield experienced a decline of 0.08 percentage points, settling at 4.13 percent.

The shift in yield patterns was mirrored by traders in federal funds futures markets, who increased their bets that the US central bank is concluding its series of benchmark interest rate raises.

Positive news

These figures present a positive development for the Federal Reserve, which had raised borrowing costs to a 22-year high to address inflationary pressures throughout the economy.

As the US central bank assesses its future policy decisions, the balance between further rate increases and the impact on the nation’s largest economy remains a challenge. Federal Reserve Chair Jay Powell emphasised that despite progress in curbing inflation, the fight against rising prices is ongoing. Powell’s statement implies a cautious approach to future policy decisions, hinting at a high threshold for any additional federal funds rate hikes during the next meeting scheduled for September.

While some economists and market participants anticipate one final rate increase this year, potentially in November, the ongoing strength of economic growth contributing to inflationary pressures remains a concern, as voiced by Susan Collins, President of the Boston Fed.

The recent data release also coincided with a rise in home prices, as indicated by the Case-Shiller national index, which saw a 0.65 percent increase month-on-month.

The Federal Reserve has underscored the necessity of achieving firm control over inflation, acknowledging that this objective will require a period of “below-trend” growth and a moderation in labour market conditions.

The decline in job openings observed in July was particularly pronounced in service-oriented industries such as professional services, healthcare, and government, sectors that had been driving job growth in recent months. This shift further underscores the evolving dynamics of the labour market.

As analysts and policymakers continue to interpret these trends, the labour market’s trajectory remains a crucial factor in shaping the Federal Reserve’s upcoming policy decisions and the broader economic landscape.

 

 

 

 

Amelia Brand
Amelia Brand

Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.