July Job Openings Fall To 3-Year Lows, Gap With Unemployment Narrows To Near Parity: Traders Raise Rate Cut Bets

Employment vacancies in the United States dropped sharply in July, hitting the lowest level in over three years and signaling a significant cooling in the labor market.

Job openings fell to 7.673 million in July, down from a downwardly revised 7.91 million in June, according to the latest official data Wednesday from the Job Openings and Labor Turnover Survey (JOLTs).

The number also came in well below market expectations of 8.1 million, adding to growing concerns about slowing employment growth.

Sectors recording the sharpest drop in job openings included:

• Health care and social assistance lost 187,000 positions.
• State and local government, excluding education, saw a reduction of 101,000 job openings.
• Transportation, warehousing and utilities experienced a decline of 88,000 jobs.

On the other hand, professional and business services added 178,000 openings, while federal government roles grew by 28,000. The quits rate remained steady at 3.3 million in July.

Traders are now keenly focused on additional labor market data ahead, including Thursday’s ADP private payrolls report and Friday’s official August employment figures.

Job Vacancies Vs. Unemployment: Key Metric For Fed

The gap between job vacancies and unemployed workers narrowed significantly in July, with 7.1 million unemployed individuals now competing for 7.673 million job openings.

This brings the ratio of job vacancies to unemployed persons to just above 1-to-1, the lowest level in over three years.

This ratio is closely monitored by the Federal Reserve as an indicator of labor market tightness, with implications for wage growth and inflation. A year ago, there were 1.4 job vacancies per unemployed person, and in March 2022, that figure was close to 2, reflecting a much tighter labor market.

Market Reactions

Markets had a muted reaction to the JOLTS report. The S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, remained flat, while technology stocks, as represented by the Invesco QQQ Trust, Series 1 QQQ, edged 0.2% lower. Semiconductor stocks, tracked by the iShares Semiconductor ETF SOXX, also slipped by 0.4%.

In contrast, bond markets rallied as Treasury yields fell by 6-7 basis points across the curve, reflecting rising expectations of rate cuts. The iShares 20+ Year Treasury Bond ETF TLT gained 0.5% on the day.

The U.S. dollar weakened, with the Invesco DB USD Index Bullish Fund ETF UUP dropping 0.3%.

Market-implied probabilities for the Federal Reserve's Sept. 18 meeting showed an almost even split between a 50-basis-point and 25-basis-point rate cut, with the chances of a deeper cut rising to 50%, up from 38% the day before, according to the CME Group‘s FedWatch data.

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