Job Market Remains ‘Extraordinarily Strong’—Here’s Why That Could Be Bad News For The Economy

Topline

Despite economists predicting a second consecutive month of declines, job openings unexpectedly rose last month—signaling the labor market remains strong and that Federal Reserve officials may not be so quick to ease up on interest rate hikes that have investors increasingly worried about a possible recession.

Federal Reserve Chair Jerome Powell testifies during a Senate Banking Committee hearing.

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Key Facts

There were 11.2 million open jobs at the end of July compared to 11 million at the end of June, according to the Labor Department’s job openings and labor turnover report released on Tuesday.

Job openings climbed the most in transportation, warehousing and utilities (up 81,000), followed by recreation, government and education, where openings climbed by 53,000, 47,000 and 42,000, respectively.

In emailed comments after the report, analyst Adam Crisafulli of Vital Knowledge Media said the big number, which exceeded expectations of 10.3 million, “isn’t going to make” Federal Reserve officials happy after they warned last week that the job market is still running too hot to justify easing up on interest rate hikes that curtail economic growth.

Meanwhile, hires and total separations, which include quits and layoffs, were also little changed month to month at about 6.4 million and 5.9 million—yet another sign of labor market resilience.

“Normally, seeing companies wanting to hire more workers is a good thing,” says Bryce Doty, a portfolio manager at Sit Fixed Income Advisors; however, “more jobs is more reason” for the Fed to raise rates “and inflict more economic harm” in order to cool down stubbornly high inflation, he explains.

Stocks fell immediately after the report, with the Dow Jones Industrial Average down about 250 points, or 0.8% by 11 a.m. ET.

Crucial Quote

“In our view, the JOLTS data suggest labor market conditions remain extraordinarily strong and suggest the Fed still has work to do in order to slow labor demand and eliminate labor market imbalances,” Bank of America analysts wrote in a Tuesday note.

Key Background

The job market has remained one of the economy’s strongest pillars after bouncing back from the Covid recession, and Fed officials have long pointed to the strength as evidence the economy can withstand additional rate hikes. Despite widespread reports of layoffs and hiring freezes, the economy posted impressive job growth for July, with more than half a million new jobs added. At his highly awaited Jackson Hole speech last week, Fed Chair Jerome Powell acknowledged there “will very likely be some softening” in the labor market as interest rate hikes curb demand and ultimately bring down inflation. Goldman economists project the recent job cuts will be reflected in coming reports and said they expect job openings, which are down from a record high of nearly 11.6 million in March, to “fall further” in the coming months.

What To Watch For

The Labor Department’s monthly jobs report, which tracks employment across the public and private //sectors, is slated for release Friday morning. On average, economists expect the pace of hiring cooled last month, with 328,000 new jobs, compared to 528,000 in July.

Surprising Fact

According to PwC, about 50% of U.S. executives are considering or planning on cutting jobs within the next six to 12 months.