The US labour market has shown the first clear sign of the impact of the Federal Reserve’s aggressive rate rises to slow growth and inflation with a huge one million plus drop in the number of vacant jobs in August.
The number of job openings, a closely followed measure of labour demand, was 10.05 million, according to data released Tuesday by the US Labor Department, which was more than 1.1 million less than in July.
August’s vacancies were the lowest since June 2021 and followed a downwardly revised 11.2 million in July and the all-time record level of 11.9 million in March.
Compared to March, the number of job vacancies has fallen by around 1.8 million, which is a significant fall – though to have 10 million vacant jobs and a jobless rate of 3.5% does indicate a still solid labour market, which is probably the message the Fed will take from the data.
August’s fall was the second largest in two decades of data, and topped only in the fall of 1.2 million April 2020, when widespread lockdowns halted hiring at the start of the first wave of the coronavirus pandemic.
The numbers come ahead of the release of official jobs data for September on Friday, which will now be more closely watched by investors for confirmation that the slump in job vacancies has impacted new job creation.
It’s not that economists want to see a collapse in jobs, they want to see how much the Fed’s series of rate rises has slowed demand and hiring.
The fall in job openings will be of some relief for the Fed. Last month, it revealed its third consecutive rate hike of 0.75%, raising the Federal Funds rate to a target range of 3%-3.25%.
The central bank meets again on November 1 and will have other key data available – consumer and producer prices which are out next week, retail sales and its preferred consumption and inflation measure – the so-called PCE data or Personal Consumption Expenditure Index which will be out only days before the meeting.
Before then the weekly initial unemployment benefits figures will be issued on Thursday, US time and will be more closely watched as well, seeing they fell to six-month lows in the second last week of September.
America’s fall was around 9% or total vacancies which is more than four times the 2.1%, or 10,000 fall in Australian vacancies in the three months to August.
With the big fall in vacancies, economists think the US economy is moving closer to a tipping point where one too many or a too big a rate rise, could crunch underlying growth to the point where stagflation appears.
The drop in vacancies was the type of data – and its size – that markets have been looking for justify the rapid rises in interest rates from the Fed.
But will they will notice with the OPEC+ group set to slash production?
That will be a move that could see oil prices rebound, and along with them US energy prices and inflation and more speculation the Fed may be forced to use another big rate rise in November or December to make sure cost pressures continue easing.
