The monthly Job Openings and Labor Turnover Survey (JOLTS) report released this week showed job openings decreased slightly to 8.79 million in November. While a decline from October’s total, openings remain historically high, indicating continued labor market strength.
For investors, the data provides evidence that the economy is headed for a soft landing. The Federal Reserve aims to cool inflation by moderating demand and employment growth, without severely damaging the job market. The modest dip in openings suggests its interest rate hikes are having the intended effect.
Openings peaked at 11.9 million in March 2022 as employers struggled to fill vacancies in the tight post-pandemic job market. The ratio of openings to unemployed workers hit nearly 2-to-1. This intense competition for workers drove up wages, contributing to rampant inflation.
Since then, the Fed has rapidly increased borrowing costs to rein in spending and hiring. As a result, job openings have fallen over 25% from peak levels. In November, there were 1.4 openings for every unemployed person, down from 2-to-1 earlier this year.
While hiring also moderated in November, layoffs remained low. This indicates companies are being selective in their hiring rather than resorting to widespread job cuts. Employers added 263,000 jobs in November, underscoring labor market resilience.
With job openings still elevated historically and unemployment at 3.7%, the leverage remains on the side of workers in wage negotiations. But the cooling demand takes pressure off employers to fill roles at any cost.
Markets Welcome Gradual Slowdown
Financial markets have reacted positively to signs of a controlled economic deceleration. Stocks rallied in 2023 amid evidence that inflation was peaking while the job market avoided a precipitous decline.
Moderating job openings support the case for a soft landing. Investors hope further gradual cooling in labor demand will help the Fed tame inflation without triggering a severe downturn.
This optimizes the backdrop for corporate earnings. While companies face margin pressure from elevated wages and input costs, strong consumer spending power has mitigated the impact on revenues so far.
The risk is that the Fed overtightens and causes an excessive pullback in hiring. Another JOLTS report showing a sharper decline in openings would sound alarm bells. But November’s modest drop eases fears.
All eyes are now on the timing of the Fed’s anticipated pivot to interest rate cuts. Markets hope easing begins in mid-2024, while the Fed projects cuts starting later this year. The path of job openings will influence its timeline.
Slower but sustained labor demand enables the central bank to maintain a steady policy course. But an abrupt downward turn would pressure quicker rate cuts to stabilize growth.
The cooling job market has varying implications across stock market sectors. Rate-sensitive high-growth firms like technology would benefit most from earlier Fed easing.
Cyclical sectors closely tied to economic growth, like industrials and materials, favor the steady flight path as it sustains activity while containing inflation. Financials also prefer the status quo for now, given the tailwind of higher interest rates.
Meanwhile, sectors struggling with worker shortages and wage pressures welcome moderating openings. Leisure and hospitality saw one of the steepest monthly declines in November after leading last year’s hiring surge.
But the pullback remains measured rather than extreme. This supports a soft landing that preserves economic momentum and corporate earnings strength, even as financial conditions tighten. With the Fed striking a delicate balance so far, investors’ hopes are high for an extended expansion.