Job openings, a key indicator of labor demand, fell by 237,000 to 7.673 million at the end of July, marking the lowest level since January 2021, according to the Labor Department's Bureau of Labor Statistics. The June figure was revised down to 7.910 million from the previously reported 8.184 million.
The drop in job openings to a 3.5-year low suggests a cooling labor market, but it is unlikely to prompt the Federal Reserve to consider a half-percentage-point interest rate cut this month. The Job Openings and Labor Turnover Survey (JOLTS) reported a ratio of 1.07 job openings per unemployed person in July, the lowest since May 2021, down from 1.16 in June. The ratio peaked just above 2.0 in 2022.
Despite the decline, the labor market does not appear to be deteriorating sharply. A separate Federal Reserve report noted that employment levels have been "generally flat to up slightly in recent weeks."
Investors and policymakers are closely monitoring the labor market due to four consecutive months of rising unemployment rates, which have fueled recession fears. Economists expect the Fed to implement a 25-basis-point rate cut at its September 17-18 meeting, though the final decision will also depend on the August employment report, scheduled for release on Friday.
Conrad DeQuadros, senior economic advisor at Brean Capital, questioned the need for a 50-basis-point rate cut in September, noting that the vacancies-to-unemployed ratio remains high by historical standards.
In July, job openings fell by 237,000 to 7.673 million, the lowest since January 2021. June’s data was revised to show 7.910 million unfilled positions instead of the initially reported 8.184 million. Reuters economists had forecast 8.100 million job openings. The peak of 12.182 million job openings occurred in March 2022, with a year-on-year decrease of 1.1 million openings. Small businesses saw the most significant reduction in job openings.
The decline in vacancies was particularly notable in healthcare and social assistance, which saw a decrease of 187,000, and in state and local government positions (excluding education), which fell by 101,000. These sectors have been key drivers of job growth this year.
In contrast, the professional and business services sector experienced an increase of 178,000 job openings, and there were 28,000 vacancies in the federal government. The job openings rate dropped to 4.6 percent, the lowest since December 2020, from 4.8 percent in June.
Hires increased by 273,000 to 5.521 million, with a notable rise of 156,000 in accommodation and food services, though federal government hires decreased by 8,000. The hires rate rose to 3.5 percent from 3.3 percent in June.
Layoffs increased by 202,000 to 1.762 million, the highest level since March 2023, but remain low by historical standards. The rise in layoffs was driven by a 75,000 increase in accommodation and food services and a 21,000 increase in finance and insurance. The layoffs rate edged up to 1.1 percent from 1.0 percent in June.
The Fed's "Beige Book" report highlighted that while some districts reported slight or modest increases in overall headcounts in late August, there were instances of firms reducing shifts, leaving positions unfilled, or cutting headcounts through attrition. Layoffs remained rare.
Financial markets are currently pricing in less than a 50 percent chance of a half-percentage-point rate cut this month, according to CME Group's FedWatch Tool. The prospect of such a cut is also cast into doubt by strong consumer spending in July.
Stocks on Wall Street traded lower, and the dollar fell against a range of currencies, while US Treasury prices increased.
Bill Adams, chief economist at Comerica Bank, commented, "The labor market remains relatively strong, but it has significantly cooled over the past 18 months. Most Americans who want jobs have them, but there are fewer opportunities for those who are laid off or seeking a change."
Data from the Commerce Department’s Bureau of Economic Analysis highlighted robust domestic demand. The trade deficit widened by 7.9 percent to $78.8 billion in July, the largest since June 2022, driven by a 2.1 percent rise in imports to $345.4 billion. Imports of goods surged by 2.3 percent to $278.2 billion, marking the highest level since June 2022, with capital goods imports reaching a record $3.3 billion, mainly due to increased purchases of computer accessories.
Although higher imports could negatively impact GDP, they also underscore the economy's resilience. Businesses might be stockpiling imports in anticipation of future tariff increases.
The Biden administration plans to introduce steeper tariffs on Chinese electric vehicles, batteries, solar products, and other goods. A final decision is expected soon, with concerns that tariffs might rise further if former President Donald Trump wins the November 5 election.
The politically sensitive goods trade deficit with China rose by $4.9 billion to $27.2 billion. Meanwhile, exports increased by 0.5 percent to $266.6 billion, with goods exports up by 0.4 percent to $175.1 billion. The goods trade deficit, adjusted for inflation, grew by 6.9 percent to $97.6 billion.
Trade has been a drag on GDP for two consecutive quarters. However, much of the increased imports may end up as inventory due to slowing domestic demand, which could mitigate some GDP impacts. Goldman Sachs revised its third-quarter GDP growth forecast to 2.5 percent from 2.7 percent, down from 3.0 percent in the second quarter.
Thomas Ryan, North America economist at Capital Economics, noted, “Net trade will weigh on third-quarter GDP growth, but this reflects the strength of imports and provides a more positive view of domestic demand than recession fears might suggest.”
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