The United States labour market is showing increasing signs of weakness, with fresh data revealing a sharp fall in job vacancies and a decline in workers' willingness to quit their roles. According to ING, these developments point to wage growth slowing to around 3%, easing inflationary pressures and paving the way for imminent interest rate cuts from the Federal Reserve.
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'Today has seen more evidence that the US jobs market is cooling markedly with vacancies dropping sharply and the quits rate pointing to wage growth slowing to 3%. With little inflation pressure coming from the jobs market the Fed is very likely to cut interest rates meaningfully in the months ahead,' ING reported.
Figures show job openings fell to 7.181 million in July, down from 7.357 million in June, defying expectations of an increase. Layoffs have also risen, while the number of unemployed Americans now exceeds available vacancies for the first time since early 2018, excluding the pandemic period.
The quits rate, a key measure of worker confidence, has dropped to 2%, compared to its 2022 peak of 3% when staff retention concerns fuelled rapid pay growth. ING's analysis suggests this aligns with a slowdown in wage growth to 3%, consistent with historical norms.
'There has been quite a sizeable reaction to today's softer-than-anticipated job openings numbers,' the bank noted, highlighting that markets have now priced in nearly the full 25 basis point rate cut expected in September. Additional reductions are anticipated at the Federal Open Market Committee (FOMC) meetings in October and December, with cumulative cuts projected to reach 75 basis points by year end.
Further evidence of weakness is expected in upcoming data. 'Tomorrow we will get the ADP numbers, which are getting more of a commentary around them in the wake of the Fed's Chris Waller, who voted for a 25bp cut in July, suggesting there has been a clear weakening in the weekly job updates they received from ADP,' ING explained. In addition, the ISM manufacturing employment index has entered deep contraction territory, signalling a likely fourth consecutive monthly decline in payrolls.
Chief International Economist James Knightley summarised: 'With a cooling US jobs market and slowing wage growth, we think the Federal Reserve will cut rates in a meaningful way, starting this month.'
More information:
ING
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