Job openings fell to 8.8 million in July, staying under 9 million for the first time since March 2021, according to the Bureau of Labor Statistics on Tuesday.
The sharp drop was a surprise as the consensus forecast had pointed to only a slight decline to 9.5 million. June’s number was also revised downwardly to 9.2 million from 9.6 million.
At the same time, the quit rate of people voluntarily leaving their jobs fell to the pre-pandemic level at 2.3%, while the hiring rate also normalized to 3.7%.
There were 1.51 job openings for each unemployed worker, down from 1.58 in June. The ratio, however, remained above the 2019 average of 1.2.
It is important to keep in mind that cooling the demand for labor has been one of the Fed’s top priorities since it began its rate hike campaign last year.
Although vacancies remained above the pre-pandemic level, the rapid unwinding of labor demand should add more reasons for the Fed to consider holding rates at the current rate until the end of the cycle.
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Another reason is that the impact of tightening monetary policy has clearly not been fully absorbed by the market.
Most of the excess labor demand came from smaller firms with fewer than 50 employees, while excess job quits came from firms with 10 to 49 employees. That implies the labor market imbalance is now concentrated in only a few segments where monetary policy often takes more time to channel through.
Similarly on the industry level, the excess job demand continued to be driven largely by volatile industries like trade, transportations, utilities, leisure and education.
The takeaway
We do not think that the Fed should push further with another rate hike. Instead, it should be more patient and let the economy work itself out in the next three to six months to avoid an unnecessary recession.
