Job openings defied expectations in August, rising to 9.6 million, mostly from a sharp increase of 409,000 in professional and business services, according to data released Tuesday by the Bureau of Labor Statistics.
While the increase in labor demand was an encouraging sign for the labor market, we think the impact on inflation, especially the core and super-core inflation measures that are closely watched by the Federal Reserve, will likely be insignificant.
Even with such an upward surprise in job openings, the ratio of vacancies to those unemployed inched down in August to 1.51 from 1.52 in July as the number of unemployed workers also increased significantly. That means the balance between labor demand and supply loosened, although only slightly.
The Fed closely watches the impact of labor demand on wage growth, which is an important component of core service inflation. But August’s data did not add to that concern. Instead, hourly wage growth cooled to 0.2% in August from 0.4% previously, more in line with a loosening labor market.
The quit rate, an important measure of labor demand, was unchanged in August, remaining at the pre-pandemic level. That level is consistent with a more balanced labor market where workers had fewer incentives to switch jobs.
We expect the Fed and the market to look through the spike in August’s job openings to focus on a potential slowdown in job growth starting this September amid headwinds like the United Auto Workers strike, the resumption of the student loan payments and the continuing effect of elevated interest rates.
Read more of RSM’s insights on the economy and the middle market.
Inside the data, increases in job openings took place across industries, with seven out of 11 categories rising in August. Professional and business services, manufacturing, and education and health services led the way.
Shorter-term job categories like trade, transportation, utilities and leisure, on the other hand, had fewer vacancies.
The takeaway
Our forecast that the Fed is likely done hiking rates remains our base case despite the rise in labor demand.
Instead, the rise in labor demand was offset by an increase in the labor force participation rate. Not only did the labor market loosen on the month but job gains should also remain steady despite economic headwinds.
With the surge in August’s labor demand, we should expect another strong jobs report for September when it is released on Friday.
