By Lucia Mutikani
WASHINGTON (Reuters) -U.S. job openings unexpectedly increased in August after two straight monthly decreases, but hiring was soft and consistent with a slowing labor market that keeps the Federal Reserve on track to cut interest rates again in November.
The Labor Department's Job Openings and Labor Turnover Survey, or JOLTS report, on Tuesday also showed layoffs declining. There were 1.13 job openings for every unemployed person in August and resignations were the lowest in four years.
Though Fed Chair Jerome Powell on Monday pushed against investors' expectations for another half-percentage-point rate reduction, he described labor market conditions as having clearly cooled over the past year, noting that "workers now view jobs as somewhat less available than they were in 2019."
"It's likely employers see falling interest rates spurring the economy and may want to staff up after lackluster hiring the last three months," said Robert Frick, corporate economist with Navy Federal Credit Union. "We're still months away from a potential robust jobs market, and workers understand this and continue to quit their jobs at a slower pace."
Job openings, a measure of labor demand, rebounded by 329,000 to 8.040 million by the last day of August, the Labor Department's Bureau of Labor Statistics said. Data for July was revised higher to show 7.711 million unfilled positions instead of the previously reported 7.673 million.
Economists polled by Reuters had forecast 7.660 million job openings. The rise in vacancies was led by the construction industry, with 138,000 job openings. There were 78,000 unfilled positions in state and local government, excluding education. But job openings in the 'other services' category fell 93,000.
The job openings rate increased to 4.8% from 4.6% in July.
Hires slipped 99,000 to 5.317 million, pulled down by declines in retail trade, transportation, warehousing and utilities as well as manufacturing, healthcare and social assistance. Hires also fell at hotels, restaurants and bars.
The hires rate dropped to 3.3% from 3.4% in July.
Layoffs declined by 105,000 to 1.608 million. There were decreases in layoffs in the retail trade and healthcare and social assistance sectors as well as at hotels, restaurants and bars. Layoffs, however, increased in the professional and business services industry.
Resignations dropped 159,000 to 3.084 million, the lowest level since August 2020. That pushed the quits rates to a four-year low of 1.9% from 2.0% in July, which should help to curb wage inflation.
The slowdown in the labor market is being driven by cooler hiring following 525 basis points worth of rate hikes from the U.S. central bank in 2022 and 2023 to combat inflation. Price pressures have abated considerably allowing the Fed to shift focus to the labor market.
The central bank last month cut its benchmark interest rate by an unusually large 50 basis points to the 4.75%-5.00% range, the first reduction in borrowing costs since 2020, in a nod to rising concerns over the labor market's health.
The Fed is expected to cut interest rates again in November and December. The focus now shifts to the employment report for September which is due to be released on Friday.
Nonfarm payrolls likely increased by 140,000 jobs last month after rising by 142,000 in August. That would be well below the average monthly gain of 202,000 jobs over the past 12 months.
The unemployment rate is forecast to be unchanged at 4.2%. It has risen from 3.4% in April 2023 as a surge in immigration boosted labor supply.
"The Fed will likely cut by a quarter point at each of the remaining meetings this year, unless we see unexpected deteriorating conditions," said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:LPLA).
Stocks on Wall Street were trading lower amid reports that Iran was preparing to imminently launch a ballistic missile attack against Israel. The dollar rose against a basket of currencies as investors sought a safe haven from the escalating tensions in the Middle East. U.S. Treasury yields fell on safe-haven flows.
STABLE MANUFACTURING
Sluggish hiring and subsiding inflation were corroborated by a survey from the Institute for Supply Management (ISM), which showed factory employment slackening in September. The ISM's manufacturing employment measure dropped to 43.9 from 46.0 in August. Its measure of prices paid by manufacturers decreased to 48.3, the lowest level since December 2023, from 54.0 in August.
A port strike by members of the International Longshoremen's Association that began on Tuesday could snarl supply chains and temporarily boost prices for inputs. The ISM's gauge of supplier deliveries increased to 52.2 from 50.5 in the prior month. A reading above 50 indicates slower deliveries.
Overall manufacturing held steady at weaker levels last month, though new orders improved. The ISM's manufacturing PMI was unchanged at 47.2 last month. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.3% of the economy.
It was the sixth consecutive month that the PMI remained below the 50 threshold, but above the 42.5 level that the ISM said over time generally indicates an expansion of the overall economy.
The survey has, however, exaggerated the weakness in manufacturing, with the so-called hard data such as factory production and durable goods orders showing the sector largely moving sideways. Gross domestic product data last week showed manufacturing output rising at a 2.6% annualized rate in the second quarter, an acceleration from the 0.2% pace posted in the January-March quarter.