RALEIGH – U.S. job openings unexpectedly rose in August to 9.6 million, another sign the U.S. labor market remains strong despite higher interest rates — perhaps too strong for the inflation fighters at the Federal Reserve. Stock markets fell by 400 points and bond prices hit 16-year highs. So are we headed toward more interest rate hikes?
“The job openings numbers were a surprise,” acknowledged N.C. State economist Dr. Mike Walden.
The federal government is set to release the all-important monthly jobs report for September at 8:30am ET on Friday. Economists are expecting a net gain of 170,000 jobs, according to Refinitiv consensus estimates.
Walden noted that growth was confined – “two-thirds of the gain was due to professional and business services, followed by financial services and government” so it’s not like the jobs market is a raging bull across all sectors.
“Job openings have been trending downward, but any trend is not going to be a straight line. Hence, I – and I would say most economists – are not revising their forecast that the job market has been cooling, and will continue to cool,” he added.
“Still, whenever there is unexpected news that the economy is doing better, investors worry about what that means for Federal Reserve policy, and [Tuesday] that worry is reflected in a big drop on the stock market.”
Report: New job creation in September falls below projections
But Wednesday morning the private sector added an estimated 89,000 jobs in September, a much lower total than expected and a potential indication of a sharp pullback in the labor market, payroll processor ADP reported.
The September tally landed well below economists’ estimates for 153,000 jobs added, as well as August’s upwardly revised total of 180,000 jobs added. It’s the slowest pace of job growth reported by ADP since January 2021.
“We are seeing a steepening decline in jobs this month,” said Nela Richardson, chief economist at ADP, in a statement Wednesday morning. “Additionally, we are seeing a steady decline in wages in the past 12 months.”
Annual pay increases for people who remained at their jobs were 5.9%, the slowest gains since October 2021; and were 9.5% for “job changers.”
While ADP’s tabulations don’t always correlate with the official federal jobs report — due out Friday — it’s sometimes viewed as a proxy for overall hiring activity, which has been gradually easing.
Economist Ian Shepherdson at Pantheon Macroeconomics brushed off Wednesday’s ADP payroll estimates, calling them “unreliable.”
“Errors since last August, relative to the initial official private payroll print, have ranged from an undershoot of 337,000 in January to an overshoot of 348,000 in June, with a mean absolute error of 85,000,” he wrote. “Sometimes ADP is just about dead right, as in August and May this year, but ‘good’ months have then tended to be followed by big misses, for no apparent reason.”
Shepherdson said there is “zero statistical justification” for changing Pantheon’s forecast of 175,000 jobs added for the upcoming jobs report.
This week’s Jobs Report from WRAL TechWire points to more hiring coming this fall, so at least in the Triangle it appears openings will not be scarce.
American employers posted 9.6 million job openings in August, up from 8.9 million in July and the first uptick in three months, the Labor Department said Tuesday. Economists had expected only another 8.9 million vacancies. The number of layoffs and of people quitting their jobs — a sign of confidence in their prospects — were both essentially unchanged from July.
Nick Bunker, head of economic research at the Indeed Hiring Lab, noted that most of the August increase in openings came from just one industry: professional and business services. “”Yes, the job market is still retaining a lot of heat,” he said, “but it hasn’t gone back on the boil.”
“I still think the best economic forecast now is for a slow moderation in economic growth that could very well lead to a ‘soft landing’ early next year – meaning bringing the inflation rate near the preferred 2% annual rate without causing a recession,” Walden explained.
The Federal Reserve wants to see the red-hot U.S. job market cool off, reducing pressure on businesses to raise pay, which can feed into higher prices. The central bank has raised its benchmark rate 11 times since March 2022 to combat inflation.
Fed Chair Jerome Powell has expressed hope that hiring would moderate in the least painful way possible — with fewer vacancies and less job-hopping rather than through layoffs.
The strong jobs data sent a ripple through U.S. markets with many investors seeing increased odds of more aggressive actions by the Fed. The Dow Jones dipped by 100 points in seconds.
So far, the economy has cooperated. Openings and quits are down from their 2022 peaks, while the unemployment rate (at 3.8% in August) remains near a half-century low. And inflation, which hit a four-decade high in mid-2022, has decelerated markedly over the past year, raising hopes that the Fed can achieve a so-called soft landing — raising rates just enough to rein in rising prices without tipping the economy into a recession.
The Fed chose not to raise rates at its last meeting Sept. 19-20. But Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said the unexpected increase in openings may keep the Fed “open to another rate hike this year.”
Loretta Mester, president of the Federal Reserve Bank of Cleveland, late Monday said that rising gas prices could thwart further progress on inflation by pushing up related costs, such as shipping and airfares, and underscored that the Fed may still hike its key rate later this year. The rate is already at a 22-year high of about 5.4%.
“I suspect we may well need to raise the (Fed’s) rate once more this year and then hold it there for some time as we accumulate more information on economic developments,” Mester said.