Job openings fall to lowest level since 2021, signaling Fed pivot
REAL ECONOMY BLOG | December 05, 2023
Authored by RSM US LLP
Job openings came in much lower than expected in October, continuing the declining trend that began early last year. Along with a downward revision to September’s data, the labor market is now the most balanced it has been since 2021.
With 8.7 million job openings in October, the vacancies-to-unemployed ratio has fallen to 1.34, only slightly higher than the pre-pandemic average of around 1.24, according to data released by the Bureau of Labor Statistics on Tuesday.
Another indicator of labor market tightness, the rate of workers quitting their jobs, has remained at 2.3%, fully normalized to the pre-pandemic level.
In a separate report from the Institute for Supply Management, the soft survey data from the service sector corroborated the slowdown in labor gains as the employment subindex remained barely above neutral.
The overall service index inched up slightly in November to 52.7 from 51.8 yet staying below 2019 level.
This data solidifies the Federal Reserve’s likely decision to keep rates unchanged while looking for signs of a pivot at its meeting next week.
Besides inflation, job openings data, which serves as a proxy for labor demand and wage pressure, has been the Fed’s top priority recently.
If there are more downside surprises in inflation and labor data in the next couple of months, we may see a pivot earlier than June in our calculations.
The economy is likely to face a maturity wall in 2025. Whether we like it or not, we believe the Fed should proactively consider how to significantly lower its policy rate to mitigate the financial stresses that will accompany the reset of interest rates in 2025.
Inside the jobs data, openings fell for almost all categories except for information, professional and business services, and government. The sharpest drop came from financial activities, with more than 200,000 fewer openings.
By firm size, openings fell significantly within firms with fewer than 250 employees, pretty much offsetting all the gains from the same categories in September. The layoff rate stayed at 1% while the hiring rate dropped by 0.1 percentage point to 3.7%.
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This article was written by Tuan Nguyen and originally appeared on 2023-12-05. Reprinted with permission from RSM US LLP.
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