Job openings drop in June amid Fed"s attempt to control inflation

REAL ECONOMY BLOG | August 02, 2022

Authored by RSM US LLP

Job openings in the United States fell for the third straight month in June as the labor market started to loosen up, the Bureau of Labor Statistics reported on Tuesday. Job openings—which represent labor demand—have been the main target of the Federal Reserve to lessen the second-round impact on wage-pushed inflation.

While the number of openings dropped to 10.7 million in June from a peak of 11.9 million in March, the pace of the decline might not be fast enough for the Fed’s appetite as inflation remained persistent. That added to the concern that the market might have been too optimistic in thinking the Fed would turn the corner soon in terms of raising interest rates after the July meeting. We firmly believe that the journey to a consistent 2% target inflation will require the Fed to remain aggressive until the data shows a meaningful pullback of inflation.

Despite being the Fed’s top target, the strong labor demand with 1.8 job openings per unemployed worker available in June was one of an only handful of reasons that leaves some room for the possibility of a soft landing.

Of course, such room has continued to narrow under the extreme pressure of jumbo rate hikes that we haven’t seen in decades as the economy descends toward a recession. That highlights how difficult a job it is to balance the economy for a soft landing. However, there is one thing that everyone should be certain of now: taming inflation is the central bank’s number one concern as Fed Chair Jerome Powell mentioned several times in his press conferences.

Underneath the top line, the imbalance between supply and demand in the labor market kept the quit rate near record level in June at 2.8%, down slightly from a record high of 3.0% a couple of months prior.

Hiring also slowed in June, down to 4.2% from 4.3% in May, in line with the increasing number of hiring freezes announced lately.

The takeaway

While the impact of rate hikes and the economic slowdown has been felt by many of the upper market firms and businesses in sectors that are more sensitive to interest rates, many small and middle market companies have remained unscathed as it often takes months for the entire impact of a slowdown to spread across every corner of the economy.

That should put some pressure on small and middle market firms to be on high alert when it comes to hiring strategies as the chance of a recession continues to increase.