- Job openings, while still well above pre-pandemic levels, fell for the sixth time in seven months. This is consistent with the Federal Reserve’s (Fed) objective of cooling the labor market.
- While consumer confidence remains consistent with further economic growth, the latest reading is also consistent with a cooling labor market.
- The CME FedWatch Tool is now assigning an 89% chance of no interest rate hike at the Fed’s September meeting (the Fed’s current short-term interest rate target is between 5.25-5.50%).
Signs of Cooling in the Overheated Labor Market:
A major objective of the Federal Reserve’s pursuit of higher interest rates has been to cool the labor market. Prior to the Pandemic, the number of job openings reached a record high of 7 million. In the aftermath of the pandemic, job openings exploded to well above 11 million. This lack of labor put significant upward pressure on wages and has been a major source of inflation concerns. Tuesday’s Job Openings and Labor Turnover Survey (JOLTS) report showed the Fed making further progress on easing the significant imbalances in the labor market.
The JOLTS report showed job openings fell 3.7% in July, down in six of the past seven months, to 8.8 million, the lowest level since March 2021, and below the consensus estimate of 9.5 million. This suggests a significant moderation in labor demand. While layoffs were little changed and remained low, the quit rate dipped to 2.3%, its lowest level also since January 2021 and in line with the pre-pandemic rate. It suggests waning worker confidence in their job prospects, similar to the findings in the Consumer Confidence survey below.
The ratio of job openings to unemployed workers eased to 1.51 from 1.58 in the prior month, its lowest level since September 2021. Although it continues to indicate tight labor market conditions, it also shows continued rebalancing, which implies some moderation in wage growth. Notably, the slide in the quit rate suggests continued shrinking in the wage premium of job switchers over job stayers in the coming months, which should bring about overall slower wage growth.
While the JOLTS report shows a labor market cooling from an over-heated state, timely weekly jobless claims have been drifting lower recently, which remains consistent with a healthy labor market and a growing economy. This suggests a higher probability of achieving the Fed’s objective of a soft landing with the market now assigning an 89% chance of no interest rate hike at the September Fed meeting.
The Conference Board’s Consumer Confidence Index saw its biggest decline in two years, nearly erasing the gains in June and July. Even so, the level of consumer confidence remains consistent with continued economic growth. Year-to-year momentum has moderated but also supports continued growth. Both the present situation and consumer expectations deteriorated this month.
Current job availability, while still broadly positive, came down to its lowest level since April 2021. More consumers finding jobs hard to get suggests some pickup in the unemployment rate in the near-term. Labor market expectations for the next six months dipped back into net negative territory. Income expectations also eased. Consumer confidence fell across all demographic and most income groups.
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