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For the first time in more than three years, there are fewer job openings than people looking for work in the US, fueling speculation of interest rate cuts by the Federal Reserve.
Government figures released Wednesday showed that the ratio of job vacancies to unemployed workers fell to 0.99 in July. The last time the balance tipped this way was in April 2021, when the ratio stood at 0.96.
Indeed economist Allison Shrivastava said in an email to Yahoo Finance that: "unemployed workers are staying out of work for longer, even as layoffs remain low. This suggests the shift is less about an increase in people losing jobs and more about a decline in job openings."
"In other words, the challenge right now lies less in job security for those already employed and more in the difficulty of reentering the labor market once you’re out of it," she added.
Job openings miss forecasts
The Labor Department’s Job Openings and Labor Turnover Survey reported 7.18 million vacancies for July. Economists surveyed by Bloomberg had expected 7.38 million, slightly above the 7.36 million posted in June.
The weaker-than-anticipated figures prompted traders to raise bets on a September rate cut. According to CME FedWatch, investors priced in a 95.6% chance of the Fed trimming rates on Wednesday, up from 91.7% earlier the same day.
While markets braced for looser monetary policy, some economists downplayed the risk of a looming recession.
RSM’s Tuan Nguyen said: "While the labor market is slowing substantially from its peak, there are few signs of an imminent downturn. In fact, when looking at job openings alongside the unemployment rate and payroll gains, conditions appear close to the long-term, non-inflationary level the Fed has aimed for."
Labor supply constraints
Bank of America senior economist Aditya Bhave noted that labor supply has weakened alongside demand. He pointed to a July dip in labor force participation, which slid to its lowest point since November 2022. He linked the decline to demographic trends and to immigration policies under the Trump administration.
"I wouldn't say this is an outright weak labor market, because again, to the extent that the supply of workers has also cooled off, that's actually helpful for the workers that are still trying to find jobs," Bhave told Yahoo Finance.
He also highlighted the pace of change in the job market as a factor, arguing that "the ratio of job vacancies to unemployed workers has been steadily falling rather than sharply declining, a good sign for the economy.
"The labor market has been cooling over the course of this year. It doesn't seem to be cooling in the manner of a recession, which would be typically very nonlinear. It would happen all at once."
