In an unexpected turn of events, the United States job market witnessed a significant surge in August, marking its most substantial increase in two years. This surge in job openings, particularly within the professional and business services sector, has ignited discussions about the Federal Reserve’s potential decision to raise interest rates next month.

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) released on Tuesday reported this impressive surge, breaking a three-month pattern of declining job openings. What’s more, employers held onto their workforce in August.

Despite this positive sign, the labor market is still on its way to achieving a balance between supply and demand. In August, there were 1.51 job openings for every unemployed individual, a slight dip from July’s figure of 1.53.

Unemployment figures did increase in August, but the quits rate remained steady, marking a 1-1/2-year low. The Federal Reserve, while holding rates steady last month, hinted at a potential rate hike by the year’s end.

Jonathan Millar, a senior economist at Barclays in New York, said, “The reversal reinforces the case for a November Fed hike.”

Job openings, a vital indicator of labor demand, soared by 690,000 to reach 9.61 million by the end of August, marking the highest level seen in over two years. July’s data was revised upward, showing 8.92 million job openings instead of the previously reported 8.83 million. Economists polled by Reuters had estimated 8.8 million job openings for August.

Small businesses with fewer than 10 employees played a substantial role in this surge, while medium-sized businesses also reported noteworthy increases. However, large corporations experienced only modest growth. Notably, there were an impressive 509,000 new positions in the professional and business services sector. Some economists view this as an anomaly, given that the sector accounts for approximately 16% of total employment, speculating that a low response rate might be skewing the numbers higher.

Other sectors also witnessed job vacancy growth, including the finance and insurance sector, which saw an increase of 96,000 openings. State and local government education added 76,000 more positions, while the nondurable goods manufacturing industry reported an additional 59,000 unfilled roles. The federal government also had an extra 31,000 job openings.

Regionally, the South and Midwest saw fewer job opportunities, while the Northeast and West reported an increase in job openings. The job openings rate rose from 5.4% in July to 5.8% in August. However, hiring only increased by 35,000 to reach 5.857 million, indicating that labor shortages remained a significant challenge.

The financial markets responded to this news with lower stock prices, while the dollar strengthened against a basket of currencies. U.S. Treasury prices dipped, pushing yields on the benchmark 10-year and 30-year notes to 16-year highs. These tight labor market conditions, combined with rising oil prices and an expanding Treasury supply, are contributing to higher bond yields.

Financial markets briefly reconsidered their expectations for the Federal Reserve’s upcoming policy meeting on October 31-November 1, according to CME Group’s FedWatch tool. The Fed has increased its policy rate by 525 basis points since March to control demand.

Now, the spotlight turns to September’s employment report, scheduled for release on Friday. Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina, noted, “Friday’s payroll data should help clarify if the labor market is as strong as the JOLTS report implies.”

The JOLTS report also revealed that layoffs saw a minor decrease of 1,000 to 1.68 million, maintaining a layoffs rate of 1.1%. Layoffs and discharges decreased in state and local government, excluding education, but increased in state and local government education.

Quits, on the other hand, increased by 19,000 to 3.638 million, breaking a two-month streak of declines. The quits rate, often seen as a measure of labor market confidence, remained stable at 2.3%. Economists believe this data is positive for keeping wage inflation in check.

Ben Ayers, senior economist at Nationwide in Columbus, Ohio, commented on the resignations, saying, “This suggests that workers are finding fewer opportunities at other firms, an early sign of cooling within the labor market.”

Resignations were most prominent in the accommodation and food services sector, where quits increased by 88,000. There were also notable increases in finance and insurance, state and local government (excluding education), as well as arts, entertainment, and recreation, which may be related to labor unrest in Hollywood. Conversely, resignations declined in the information industry.

This unexpected surge in job openings, along with stable quits rates, has left economists and policymakers closely watching the labor market as the Federal Reserve considers its next move regarding interest rates.

Photo: Walmart employee/ www.foxbusiness.com

By: Montel Kamau
Serrari Financial Analyst
4th October, 2023