Job openings rise as the labor market marches toward normalization

Labor demand remained strong in May, bolstering hirings during the month, the Bureau of Labor Statistics reported on Tuesday.

Job openings edged up unexpectedly to 8.14 million from a downwardly revised 7.92 million in April. The increase in job openings is in line with our forecast for another strong month of job creation when the employment data for June is released on Friday.

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In the same report on Tuesday, the balance between labor supply and demand stayed unchanged as the quit rate, our preferred metric for inflationary pressure inside the labor market, remained at 2.2%.

The data suggests we might see an uptick in labor supply through the participation rate while wage growth might slow, both consistent with consensus forecasts.

Tuesday’s data, showing a still-strong labor market, won’t alter the Federal Reserve’s likely decision to keep interest rates unchanged at its meeting this month.

At the same time, as signs point toward a more balanced labor market, we believe the Fed should aim to cut its policy rate in September to avoid putting more pressure on job growth.

Besides the quit rate, the unemployment rate will most likely stay unchanged at 4.0% for the second straight month when the Friday jobs report is released, signifying that an inflection point in the labor market is near.

We think the Fed’s current policy rate might be too restrictive given how inflation has settled near 2.5% and the unemployment rate is at 4%. Sooner rather than later, the Fed should lower its benchmark rate to rebalance its priority toward growth instead of fixating on inflation.