- Job openings fell to 7.67 million from 7.91 million in the prior month, translating to 1.1 job openings per unemployed worker, the lowest level since 2021.
- The data raises concerns about a strong rebound in August job gains, as demand for labor is cooling across many sectors and regions.
- If the August jobs report shows much weaker numbers than the consensus forecast of a sizable rebound, the Fed may opt for a super-sized 50 basis-point rate cut in September.
Job openings fell back to normal levels in July, providing a key reason why the Federal Reserve should have cut interest rates sooner according to our view. The drop in openings, along with other data, raises some concerns about the strength of the August jobs report coming out on Friday.
Openings Fall to Lowest Level Since 2021
The number of job openings fell to 7.67 million in July, down from 7.91 million the month before. This translated into 11 job openings per unemployed worker, the lowest ratio since 2021. The data shows labor demand is cooling across sectors and regions.
The largest declines came in healthcare, which saw openings fall by 187,000, and state and local government, which had 121,000 fewer openings. However, small firms with less than 10 employees are still struggling to fill positions. Openings at small firms remained high at around 15 million in July, compared to an average of 900,000 before the pandemic.
Lower Job Gains Expected in August
With hiring rates steady but job openings declining, risks are increasing that August job gains will disappoint. If Friday’s jobs report shows gains below 100,000 and a higher unemployment rate, it should prompt the Fed to consider a large, 50 basis-point rate cut in September.
The Fed wants to avoid further deterioration in the labor market. Some members were open to a rate cut in July, according to the latest meeting minutes. But job gains likely remained above 150,000 in August as layoffs are still low. This means a 50 basis-point cut is not yet necessary, though risks are rising.
Outlook Remains Uncertain
Friday’s jobs report will be critical for the Fed’s decision making. Much weaker than expected numbers could push them to deliver a large rate cut at the September meeting. For now, we think the Fed will hold off on an emergency cut, but they are ready to act if the labor market takes a turn for the worse. The path forward remains uncertain as demand cools but layoffs stay low for now.
