Surge in US Job Openings Signals Potential Interest Rate Hike

Surge in US job openings raises prospects of an interest rate hike. Labor market inches towards balance. Analysis of JOLTS report and potential Fed action.

Oct 3, 2023 - 11:51
Oct 3, 2023 - 11:52
Surge in US Job Openings Signals Potential Interest Rate Hike
Surge in US Job Openings Signals Potential Interest Rate Hike

job openings in the US saw a substantial rise, particularly in professional and business services. This could prompt the Federal Reserve to consider raising interest rates next month. The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) report revealed this increase, breaking a three-month trend of declining job openings. Employers also retained their workforce in August.

However, the labor market is gradually heading towards a state of equilibrium between demand and supply. August saw 1.5 job openings for every unemployed individual, with the quits rate remaining steady. While the Fed kept rates stable last month, indications suggest a potential hike by year-end.

Jeffrey Roach, Chief Economist at LPL Financial, notes, "The Fed is keen on aligning labor supply with labor demand, and we're not quite there yet."

Job openings, a gauge of labor demand, surged by 690,000 to reach 9.61 million by the end of August. July's data was revised upwards, indicating 8.92 million job openings instead of the initially reported 8.827 million. Economists surveyed by Reuters had anticipated 8.8 million job openings in August.

The professional and business services sector saw an additional 509,000 open positions, while the finance and insurance sector witnessed an increase of 96,000 vacancies. State and local government education recorded an additional 76,000 openings.

In the non-durable goods manufacturing industry, unfilled positions rose by 59,000, with the federal government showing an extra 31,000 openings.

The job openings rate rose from 5.4% in July to 5.8%. However, hiring only saw an increase of 35,000, indicating significant worker shortages. The Fed has already raised its policy rate by 525 basis points since March to address demand.

Following the JOLTS report, financial markets adjusted expectations, leaning towards the possibility of the US central bank modifying rates at its October 31-November 1 policy meeting, according to CME Group's FedWatch tool.

US stocks experienced extended losses after this data release, while the dollar strengthened against a range of currencies. US Treasury prices declined.

The report also revealed a slight dip in layoffs, down 1,000 to 1.68 million, maintaining the layoffs rate at 1.1%. Quits increased by 19,000 to 3.638 million, concluding two consecutive months of decline. The quits rate, viewed as a gauge of labor market confidence, remained steady at 2.3%. Economists believe this data is promising for keeping wage inflation in check.

Notable increases in quits were observed in the accommodation and food services sector, where resignations rose by 88,000. Finance and insurance, state and local government (excluding education), and arts, entertainment, and recreation also saw significant rises, possibly linked to labor unrest in Hollywood. There was a decline in resignations in the information industry.

Also Read: What You Need to Know About Resuming Federal Student Loan Payments?

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