Following the gangbuster January jobs report and eight consecutive interest rate hikes by the Federal Reserve, the U.S. job market is still punching above its weight and pushing the central bank toward faster rate hikes.
The job openings and labor turnover survey (JOLTS) released Wednesday by the Labor Department’s Bureau of Labor Statistics (BLS) showed there were 10.8 million job openings in the economy at the end of January, a downtick from 11 million the month prior but still higher than the 10.6 million openings that analysts had been predicting.
“BLS-reported job openings remained sky-high in January, even as survey data on business hiring plans and active online job postings across the U.S. continued to decline,” Julia Pollak, chief economist with online recruiting company ZipRecruiter, wrote in an analysis.
Hot job market puts pressure on Fed
Markets took a quick dive after the news broke, with the Dow Jones Industrial Average of stocks dropping 100 points in early trading on Wednesday.
As the Federal Reserve continues to fight inflation with interest rate hikes, increasing attention is being paid to the U.S. job market, which is seeing the lowest level of unemployment in more than 50 years.
Markets have tended to be highly responsive to jobs data in recent months, and signs of persistent strength in the job market have often been interpreted by Wall Street as more reason for the Fed to keep pushing on interest rate hikes.
Federal Reserve Chairman Jerome Powell told a House panel on Wednesday that the central bank remains committed to more interest rate hikes, noting that the top line rate “is likely to be higher than previously anticipated.”
But he added that the Fed’s decision will be driven by recent economic indicators, including Wednesday’s job openings figures and Friday’s jobs report.
“Those will be important, and we’ll scrutinize them,” Powell told members of the House Financial Services Committee. “We’re not on a preset path. We will be guided by the incoming data and the evolving outlook.”
The Fed is currently expecting the unemployment rate to increase this year by 1.2 percentage points, or about 2 million additional people out of work.
Powell stressed that he is closely watching the job market ahead of the Fed’s next meeting on March 21-22, where officials will decide how aggressive to get with rate hikes.
“Some part of the high inflation that we’ve experienced is very likely related to an extremely tight labor market,” Powell said.
Where job openings, turnover are falling off
Declines in openings for construction workers, people in the food service industry and workers in the financial sector made up most of the 410,000-opening decline in January. But job openings increased in the transportation and warehousing sector, as well as manufacturing, which added 50,000 open positions.
The survey found the number of people quitting their jobs in January decreased by 207,000 to 3.9 million, while layoffs and firings increased by 241,000 to 1.7 million.
“The increase in layoffs is noteworthy,” Pollak wrote. “The lowest number of layoffs and discharges in any month prior to the pandemic was 1.6 million. Since the pandemic recovery, however, layoffs and discharges have been in previously uncharted territory, hovering between 1.2 and 1.5 million every month. The large increase to 1.7 million this month brings them closer to the pre-pandemic average.”
Layoffs are rising, but jobless claims remain low
Other market commentators noted that the rise in layoffs has not yet affected unemployment benefit claims.
“Layoffs and job cut announcements have accelerated but have not infiltrated data on new and continuing claims for unemployment benefits. Some affected workers might have quickly found new work and elsewhere severance payments could have mitigated against some new claims,” Mark Hamrick, an analyst with financial services company Bankrate, wrote in a statement.
Hamrick described the changes in the job market as “modest.”
Is the job market as strong as it seems?
There were roughly two open jobs for every jobless American seeking work in January, according to the January JOLTS report. Fed officials believe that the steep gulf between openings and workers is giving job applicants too much power to bid wages higher.
But some economists believe the Fed is overestimating how many Americans are actually in need and looking for work.
While the standard unemployment measure puts the number of people looking for work at around 5.6 million in January, that number swells to 10.9 million when including people who are either working in jobs below their skill level or people not seeking jobs even though they would like to work.
The 10.8 million job openings reported in the JOLTS survey lines up very closely that broader measure of unemployment.
Boston College economist Brian Bethune said the dynamic means the Fed may be trying to use rate hikes to solve problems in the economy that are actually driven by mismatches among workers, their skills and available jobs in their areas.
“These human resource allocation and reallocation issues are vastly more important for economic welfare over the long run relative to the question of whether interest rates should be 5 percent or 6 percent in 2023,” he said.