Job Openings Hit Lowest Level Since September: What It Means for Investors

The U.S. job market has been cooling off, with job openings hitting their lowest level since September 2024, according to the latest Job Openings and Labor Turnover Survey (JOLTS) report. This decline, coupled with a rise in layoffs and a drop in the quits rate, suggests a labor market that is losing some of its resilience. As investors, we must stay informed about these trends to make strategic decisions in the face of a changing economic landscape.

The number of job openings in the U.S. dipped to 7.443 million in September, falling from a downwardly-revised 7.861 million in the prior month. This decline was partly due to declines in the healthcare and social assistance sector, which lost 178,000 openings. However, the hiring rate increased to 3.5% in September, which is below the pre-pandemic average but above the lower rates seen during the summer months. Hiring rose across industries, gaining 50,000 in manufacturing, 38,000 in retail trade, and 33,000 in healthcare and social assistance. Despite new openings, hiring was flat in finance and insurance and professional and business services.

The ratio of job openings to unemployed job seekers, a measure of balance in the labor market, was nearly flat at 1.1 in September. This is still below the pre-pandemic average, indicating that the labor market is not yet fully balanced. The decline in job openings was cushioned by a decline in the number of unemployed, which prevented the ratio from falling further. However, the layoffs rate increased to 1.2% in September, which is equal to the pre-pandemic average and comes after more than a year of low layoff rates. If layoffs were to creep up, that could boost unemployment, which the Federal Reserve is trying to avoid.

The drop in the quits rate showed additional labor market cooling, as it fell to 1.9% in September. This is well below the pre-pandemic average and is back to summer 2015 levels. Quits declined most in professional and business services, while increasing most in retail. The Labor Leverage Ratio, a proxy for worker bargaining power, lost ground in September.

Data from ADP show that the wage premium for switching jobs dropped to 6.6% in September from 7.3% in August. This is the lowest rate in three and a half years and is down from a high of 16.4% in June 2022. This change aligns with the lower quits rate, as workers are increasingly staying put. The question is how hiring and layoffs will evolve. Additional layoffs would be less harmful if hiring picked up. If not, that would result in labor market weakness.

As investors, we must consider the implications of these labor market trends on our portfolios. A cooling labor market may suggest a slowing economy, which could impact corporate earnings and stock prices. However, it is essential to remember that the labor market is just one indicator among many, and other factors, such as monetary policy, geopolitical events, and sector-specific trends, can also influence investment decisions.

In conclusion, the recent trends in job openings and hiring rates have led to a decline in the job openings-to-unemployed ratio, indicating a cooling but resilient labor market. However, the increase in the layoffs rate and the drop in the quits rate suggest that the labor market may be facing some headwinds. Investors should monitor these trends closely and consider the broader economic context when making investment decisions. By staying informed and adaptable, we can navigate the changing labor market landscape and position our portfolios for long-term success.