The labor market has come full circle five years after the pandemic shock and is now back at its full employment level. July’s data on job openings, quits and layoffs reaffirmed that the Federal Reserve is at its target when it comes to the employment mandate.
- Job openings fell to 7.181 million from 7.357 million.
- Job layoffs rose to 1.808 million from 1.796 million.
- The job openings-to-unemployed ratio fell to 1.0, the lowest level since 2021.
While the labor market is slowing from its peak, we don’t see many reasons for it to hit a downturn anytime soon.
In fact, looking at the job openings data together with the unemployment rate and job gains, we have arrived at a level that is, in our estimate, close to the long-term non-inflationary level that the Fed has wished for.
Job openings have returned to their 2018 level that is consistent with an unemployment rate in the 4% range. Payroll gains have continued to normalize to around 50,000 to 75,000 per month on average.
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If the Fed wants to cut rates because of the labor market, it would be all about the future risks of further slowdown or even declines in labor activities, not because of the recent data.
We don’t think the Fed is ready to change its data-dependent approach. Inflation is further from the target than unemployment is. And the risk of inflation getting further away is likely bigger now in our estimate than unemployment.
While a rate cut in September looks like a done deal now, pending August’s job and inflation data, there is no guarantee that we will see more cuts in subsequent meetings this year.
