Job openings inch down as economy stays on track for a soft landing

REAL ECONOMY BLOG | March 06, 2024

Authored by RSM US LLP

While the job openings data released on Wednesday continued to show a tight labor market in January, it remained on a downward trend toward normalization.

Job openings cooled in back-to-back months to 8.86 million in January with December’s figure revised down to 8.89 million from 9.03 million previously, according to the Bureau of Labor Statistics.

Still, openings remained above the pre-pandemic level with the openings-to-unemployed ratio inching up to 1.45 from 1.44 earlier. The pre-pandemic average was around 1.2.

The good news is the quit rate—our preferred metric for labor market tightness—edged down by 0.1 percentage point to 2.1%. The hiring rate also inched down to 3.6% from 3.7%. Both the quit rate and hiring rate have returned to pre-pandemic levels, while layoffs remained below the 2019 average.

The data suggested no significant additional pressure on wage inflation based on quit and hiring rates, while economic growth should remain strong based on the demand seen in job openings and layoffs.

This reaffirms our forecast that the economy will reach a soft landing by midyear, when growth will most likely stay around 2%, with inflation also reaching near the Federal Reserve’s 2% target.

The Fed should continue to be in a position to keep rates unchanged until the summer, when we believe it should begin to cut rates. Once the scenario for 2% growth and 2% inflation are met, it is important for the Fed to shift its approach of being data dependent, which can be backward-looking, to forward-looking to keep the economy on a sustainable growth track.

For anyone who is concerned that cutting rates would risk reigniting inflation, a slow pace of rate cuts would allow real interest rates to stay positive and restrictive enough to keep overall demand under control. It won’t be until next year at the earliest in our estimation for rates to be back to neutral, which should be between 2.5% and 3%.

Inside the data

Job openings slowed most in the government sector, falling by 100,000 on the month, while the private sector posted an increase of about 80,000 net vacancies.

Within the private sector, professional and business services, leisure and hospitality, manufacturing and information led the increases, while mining, construction and trade led the declines in vacancies.

At the firm-size level, vacancies rose most for small firms that have fewer than 50 employees, while openings slowed for bigger firms.

The quit rate stayed unchanged for private firms at 2.4% and inched down for government jobs to 0.8% from 0.9%.