According to the most recent data from the U.S. Job Openings and Labor Turnover Survey (JOLTS), this represents a very troubling trend in the labor market. It’s a sign that the environment is beginning to thaw. The report pointed to an overall decline in job openings, which dropped to 7.2 million — a drop that was bigger than analysts had anticipated. Then, a flood of layoffs to 1.8 million caused much ringing of alarm bells about the state of the job market.
This sharp decrease in job openings indicates a profound labor market shift. Specifically, it illustrates that the demand for workers at the same time, pretty much across every single sector, is cooling. According to Francesco Pesole, an expert in financial analysis, “Yesterday’s US JOLTS figures confirmed the labour market is loosening. While job openings fell more than expected to 7.2 million, it’s the uptick in layoffs to 1.8 million that’s more concerning.” The drop in layoffs is a reason for alarm as well, especially for employees out there looking for job security. It raises important questions about the future of work overall.
With layoffs hitting 2008 levels, we are reminded of the deep economic pain. These dynamics have forced analysts to focus on how this trend is affecting wage growth and consumer spending. Pesole pointed to a suppressed quit rate as holding down wage growth. In addition, workers are afraid to quit their jobs due to uncertainty.
In conjunction with these labor market developments, attention has turned to the upcoming ADP payroll figures, which are anticipated with heightened interest. Recent comments from Christopher Waller underscore why these figures are so critical. He became arguably the most influential member of the Federal Reserve and the best-known hawkish dissenter. As a likely front-runner for the next Chair of the Fed, Waller’s views are particularly significant as the monetary policy debate unfolds.
Pesole elaborated on the importance of the ADP data: “Expect no less interest in ADP payroll figures today, for two reasons. First, after official employment revisions, it appears that ADP data did have some decent predictive power for payrolls. Second, the Fed’s hawkish dissenter (and Chair front-runner) Christopher Waller said the weekly reports received from ADP showed continued deterioration.” That means all of market participants are crossing their fingers to see just how well ADP’s estimates match up with real payroll figures.
The broader economic context surrounding these labor market trends makes forecasting future monetary policy moves particularly complicated. Pesole noted that “the key question is whether the markets are ready to take rate expectations much lower.” He acknowledged there would be some hesitance at least until September 11 when the new Consumer Price Index (CPI) data comes out. Yet, he argued that given how strong the dollar is relative to short-term rates, it could still have further room to depreciate before the jobs report.
Policymakers and economists are still working to understand these developments. The recent record-high layoffs and plunge in job openings underscore more seismic changes in the U.S. labor market. The ramifications of these changes go beyond short-term job displacement and could affect inflation and consumer spending.