The sharp increase in job openings in October reaffirmed our call that the weaknesses of recent months were short-lived. Most of the gains in vacancies came from the South, which was hit by Hurricane Milton.
Total job openings in October rose to 7.74 million from 7.37 million, the Bureau of Labor Statistics reported on Tuesday. That left the vacancies-to-unemployed ratio unchanged at 1.1, in line with the pre-pandemic level.
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Overall, with the demand for workers still strong, we believe there is room for the labor market to remain healthy.
Looking ahead, in the short run, we don’t see the job openings data as sufficient to discourage a rate cut by the Fed in December. But if strong labor demand continues into next year, the probability of a January pause and a slower pace of rate cuts becomes more of a base case.
Further down the line, next year and beyond, if the market’s expectations for tighter immigration policies and growth-focused measures materialize, we could see a less balanced labor market where vacancies and quit rates might spike again.
But that would not necessarily translate into higher hiring rates, as the labor supply would most likely remain subdued under the new set of policies.
The Federal Reserve will—and should—take these expectations into account, as it will influence businesses’ and consumers’ outlooks on inflation and employment. Still, we are far from seeing those policies implemented.
In the meantime, we believe the Fed should maintain control of the narrative by focusing on the employment side of its dual mandate.
With the unemployment rate currently at 4.1%, higher than the pre-pandemic low of under 4%, further rate cuts would be welcomed by the market.
The hiring rate in October dropped to 3.3% from 3.5%, aligning with the easing of October job gains. Meanwhile, the quit rate rose to 2.1% from 1.9%, signaling that workers felt more confident about their job prospects and were willing to switch jobs for higher pay.
