Why US Job Openings Point to an Overheating Employment Market

US job openings at an all-time high

The Bureau of Labor Statistics (or BLS) released the “Job Openings and Labor Turnover Survey” (or JOLTS) data for March on May 8. As per the latest report, the total number of job openings on the last day of March was 6.6 million, a sharp increase from the February reading of 6.1 million job openings. The March reading was the highest level of job openings for this economic measure since its inception in 2000.

The BLS collects the data through a monthly survey of nearly 16,000 employers in the government, private (XLI), and non-farm sectors. The survey measures new employees hired, employees who have quit, employees who have been asked to leave, and other job separations.

Why US Job Openings Point to an Overheating Employment Market

Economic importance of job openings

Workforce demand is an important economic indicator for any economy. In the current US economic climate, where unemployment is at an all-time low and wage pressure is on the rise, a higher number of job openings is a sign that the job market could be overheating. An overheating job market could lead to a shortage of employees, which is already being witnessed in the skilled sector. A labor shortage would force employers to pay higher wages to attract and retain workers.

What would an overheating job market mean?

The major impact of an overheating job market is rising wages. Disposable income has already been increasing because of tax cuts, and further upward pressure from higher wages could push inflation (TIP) expectations higher. The US Fed is expected to continue with rate hikes (BND), and these higher inflation (VTIP) expectations because of rising wages could force a faster rate hike pace. The memory of the February 2018 equity market (SPY) sell-off because of higher average hourly wage growth is still fresh in our minds, and that scenario could be revisited as the US employment market gets stronger by the day.

In the next part of this series, we’ll look at the other important component of the JOLTS data: how many people quit their jobs during the period.