JOLTS job openings unexpectedly weakened to the lowest level since early 2021, and expectations for a 50 basis point rate cut in September jumped to 50%. Citi said that if Friday's non-farm payrolls report confirms that the labor market is deteriorating, the Federal Reserve is expected to cut interest rates by 50 basis points in September and another 50 basis points in November.
The ratio of job openings to unemployed persons fell to 1.1:1, down from the pre-pandemic ratio of 1.2:1 and more similar to job market conditions in 2018.
The hiring rate rose slightly to 3.5% from 3.3%, but it is still low and comparable to 2014. Hiring in the leisure and hospitality sector was particularly sluggish, rebounding to 5.5% from an unusually low 4.5% in June. Government hiring fell sharply, from 1.7% in March to 1.4% in July.
While July's low layoff rate suggests the labor market has not yet deteriorated sharply, the trend of fewer job openings and lower hiring rates, combined with a steady rise in the unemployment rate, suggests the job market is on the verge of a more sharp weakening. Job openings are expected to continue to decline and the unemployment rate to rise faster in the coming months.
Citigroup believes that if Friday's jobs report confirms that the labor market is weakening, the Federal Reserve is expected to cut interest rates by 50 basis points in September and another 50 basis points in November.