US job openings at lowest level in over 2 years as labor market cools
December 5, 2023 – 10:29 AM PST
WASHINGTON, Dec 5 (Reuters) – U.S. job openings fell to more than a 2-1/2-year low in October, the strongest sign yet that higher interest rates were dampening demand for workers, and boosting financial markets expectations the Federal Reserve’s monetary policy tightening cycle was over.
The Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS report, on Tuesday also showed that there were 1.34 vacancies for every unemployed person in October, the lowest since August 2021 and down from 1.47 in September. Fewer workers are resigning, which over time could help ease wage inflation.
The larger-than-expected decline in unfilled jobs followed data last week showing inflation subsiding in October. The run of inflation-friendly reports has led financial markets to anticipate a rate cut as early as next March.
“These data will be welcome news for policymakers,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “The data support our view that rates are at a peak and the Fed’s next move will be a rate cut, likely in second quarter of 2024.” Job openings, a measure of labor demand, fell 617,000 to 8.733 million on the last day of October, the lowest level since March 2021 and down from 9.350 million in September, the Labor Department’s Bureau of Labor Statistics said.
Economists polled by Reuters had forecast 9.30 million job openings in October. The largest monthly decline in vacancies since May was led by the health care and social assistance sector, where unfilled jobs dropped by 236,000.
Job openings decreased by 168,000 in the finance and insurance industry, while real estate, rental and leasing had 49,000 fewer positions. But job openings increased by 39,000 in the information sector. The job openings rate dropped to 5.3% from 5.6% in September. The decline in vacancies was in all four regions, with steeper decreases in the South and Midwest.
Hiring slipped 18,000 to 5.886 million. Hiring dropped 110,000 in the accommodation and food services industry, which had been the biggest driver of job growth since the recovery from the pandemic. The hires rates dipped to 3.7% from 3.8% in the prior month.
Resignations slipped 18,000 to 3.628 million. The quits rate, viewed as a measure of labor market confidence, was unchanged at 2.3% for the fourth month. Declining quits point to slower wage growth and ultimately price pressures in the economy.
“The current state of the labor market suggests no further recalibration is necessary to bring the labor market back into balance,” said Nick Bunker, director of economics research at Indeed Hiring Lab.
Stocks on Wall Street were mixed. The dollar gained versus a basket of currencies. U.S. Treasury prices rose.
FED ON HOLD
The Fed is expected to leave rates unchanged next Wednesday. Since March 2022, the central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50%.
Though the labor market is easing, it is doing so gradually. Layoffs rose 32,000 to a still-low 1.642 million in October, amid increases in the transportation, warehousing and utilities industry as well as the health care and social assistance sector. The layoffs rate was unchanged at 1.0%.
“A far greater contribution to reducing the excess demand for labor is being made by a reduction in vacancies rather than an increase in unemployment,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
A separate report from the Institute for Supply Management showed services employment growing in November for the sixth consecutive month after contracting in May. The ISM said employers reported losing “employees due to normal attrition,” and “are having issues backfilling these positions.” They also described the labor market as remaining “very competitive,” and “trying to get to full staff levels.”
The ISM’s overall services PMI rose to 52.7 in November from 51.8 in October, posting its 11th straight month of expansion.
Comments from businesses were mixed. Accommodation and food services industries expected restaurant sales and traffic trends to “pick up again in December.” Healthcare and social assistance businesses reported “signs of recovery are on the horizon,” while the construction sector said opportunities remain “strong.”
But businesses in the professional, scientific and technical services industry reported that “fourth-quarter revenues (are)lower than projected.” Public administration businesses said “prices for most items (are) increasing, but only slightly.”
The government is expected to report on Friday that nonfarm payrolls increased by 185,000 jobs in November, according to a Reuters survey of economists, boosted by the return of about 33,000 striking United Auto Workers union members. Payrolls increased by 150,000 positions in October.
November’s anticipated job count would be below the average monthly gain of 258,000 over the prior 12 months. While economic activity is cooling in the fourth quarter, a recession is unlikely. Most economists are projecting tepid growth after the economy grew at a 5.2% annualized rate in the third quarter.
“Many of the downside risks to the fourth quarter that economists were worrying about a few weeks ago, war in the Middle East, government shutdown and the UAW strike, look like they will exert only modest and short-lived headwinds to growth,” said Bill Adams, chief economist at Comerica Bank in Dallas.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama
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How are businesses in the accommodation and food services industry coping with the decline in hiring and job growth
Technical, and scientific services industry expressed concerns about the availability of skilled labor, with one respondent stating, “Difficulty in filling positions with qualified workers remains a significant challenge.”
The latest JOLTS report highlights the ongoing effects of the Federal Reserve’s tightening cycle on the labor market. With interest rates on the rise, businesses are becoming more cautious in their hiring practices, leading to a decrease in job openings. Additionally, the decline in resignations suggests that workers are less inclined to seek new job opportunities, potentially alleviating wage inflation.
The decline in job openings was particularly notable in the health care and social assistance sector, as well as the finance and insurance industry. However, the information sector saw an increase in job openings, indicating potential growth in that field.
Hiring also experienced a slight decline, with the accommodation and food services industry being the most affected. This industry had been a major driver of job growth since the recovery from the pandemic, but it is now facing challenges.
It is important to note that the labor market is still in a state of gradual easing, and layoffs remain relatively low. The overall services employment continues to grow, indicating a positive trend in the economy. However, businesses are reporting difficulties in filling vacancies and reaching full staff levels, suggesting continued challenges in the labor market.
The Federal Reserve is expected to keep interest rates unchanged in its upcoming meeting. The recent data on the labor market supports the speculation that the Fed’s tightening cycle may be nearing its end, with some economists predicting a rate cut in the second quarter of 2024.
Overall, the October JOLTS report provides valuable insights into the current state of the labor market in the United States. The decline in job openings and hiring, as well as the decrease in resignations, indicate the impact of higher interest rates on labor demand. Policymakers and economists will closely analyze these findings to determine the future direction of monetary policy and its implications for the economy.
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