Job Seekers Found Fewer Opportunities In July As Labor Market Cooled

In the latest sign that the labor market is cooling down, the number of job openings fell in July to its lowest since January 2021.

That’s according to a report from the Bureau of Labor Statistics Wednesday, which showed there were 7.7 million job openings in July, down from 7.9 million in June.  That was well short of the 8.1 million openings forecasters had expected, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. June’s figure was itself downwardly revised from the previously reported total of 8.2 million.

Not only are there fewer job openings, a separate report last month showed that there were more unemployed workers in July vying for those jobs. Specifically, there were 1.07 job openings for every unemployed worker, the lowest ratio since mid-2021 and below pre-pandemic levels as far as 2018. In 2022, when workers were in high demand, the ratio had gotten as high as 2-1.

The report added to recent evidence that the labor market is faltering under the weight of the Federal Reserve’s campaign of anti-inflation interest rate hikes, which were meant to slow the overheating economy and put a lid on inflation since 2022. 

The Fed's rate hikes have resulted in high interest rates for all kinds of loans, making it harder for businesses to borrow money to hire and expand and for consumers to make purchases, especially for big-ticket items like cars that are normally purchased through credit.

“The jobs market is gradually cooling and although it is not broken, where it will be in the next six months to a year without material help from the Fed is a big question mark,” Ali Jaffery, an economist at CIBC, wrote in a commentary.

Businesses may be curtailing their hiring plans amid a general slowdown of the economy. Not only did the number of job openings decrease, but the number of layoffs ticked up to 1.8 million from 1.6 million in June, the highest since March 2023.

Wednesday’s report wasn’t all bad news for workers. The number of hires rose to 5.5 million from 5.2 million. And economists have attributed at least some of the job market slowdown in July to bad weather, especially the impact of Hurricane Beryl, which struck Texas that month, rather than deeper economic problems. And the layoff rate remained below pre-pandemic levels.

Still, job openings have fallen 37% from their peak in March 2023, a sure sign of a slowdown, if not a crash in the labor market. That could pressure Fed officials to cut the central bank’s benchmark interest rate to stoke the economy and prevent a wave of mass layoffs. 

What Does This Mean For The Federal Reserve?

Fed officials have indicated they plan to make a cut in their next meeting on Sept. 17-18. Financial markets were pricing in a 45% chance that the Fed would chop the rate by 0.5 percentage points from its current range of 5.25-5.50%, as opposed to a more cautious 0.25 percentage point cut. The odds of a larger cut rose 7 percentage points after the job openings report Wednesday morning, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

Fed policymakers are attempting to preserve the labor market but don’t want to reignite inflation, and must balance those two priorities when setting the Fed’s influential fed funds rate, which influences interest rates on mortgages, car loans, and all kinds of other credit. 

Fed officials once sought to cool the labor market out of concern that wage increases could stoke inflation. As hiring has slowed in recent months, those concerns have given way to worry that the labor market could fall out of balance in the opposite direction and get too tough for workers. 

“The labor market is no longer cooling down to its pre-pandemic temperature, it’s dropped past it,” Nick Bunker, head of economic research at the hiring lab of job site Indeed, wrote in a commentary. “Nobody, and certainly not policymakers at the Federal Reserve, should want the labor market to get any cooler at this point.”