Job openings exceed 10 million as labor market imbalance widens

REAL ECONOMY BLOG | May 31, 2023

Authored by RSM US LLP

Job openings came in stronger than expected for April as the imbalance in the labor market widened, according to data released by the Bureau of Labor Statistics on Wednesday

The latest data comes at an important juncture, two weeks ahead of the Federal Reserve’s highly anticipated June meeting where it will consider another rate increase as it tries to tame inflation.

With 10.1 million job vacancies in April, the openings-to-unemployed ratio—a proxy for labor demand and supply mismatches—surged to 1.79 from 1.64 previously.

The data should bolster the case for those at the Fed who favor more rate hikes to cool an inflation rate that remains between 4% and 5%, well above the central bank’s 2% target.

But there was also something for the doves in Wednesday’s report: Underneath the top-line number, there is reason to believe that such an increase in openings might not last. Most of the increase came from the smallest firms, or those with one to nine employees. Those firms alone registered a net increase in openings of 389,000 on the month.

Smaller firms have not yet felt the full impact of the Fed’s interest rate hikes as they struggle to compete with larger firms for talent in a tight labor market.

Such strong demand for labor from small market firms, if it continued beyond April, might affect May’s employment data that will be released on Friday, but it should not change wage growth too much as those jobs often pay less.

Inside the job openings data, both hiring and layoffs in April pointed to a stronger labor market. Hiring picked up for the first time in three months to 6.1 million, while layoffs fell sharply to 1.6 million from 1.8 million.

The data is aligned with both payroll and jobless claims data on the month, showing improvement and not softening.

But the fear of an economic slowdown or even a downturn continued to push the percentage of people leaving their jobs, known as the quit rate, lower as workers held on to their jobs longer.

The quit rate was down to 2.4% in April, the lowest in more than two years, inching closer to the 2019 level, before the pandemic.

The takeaway

Given the significant imbalance between labor demand and supply, we should expect job gains to remain strong in the months ahead. But that is the recipe for the Fed to consider more rate hikes barring any negative shocks from the debt-ceiling debate and the banking system.