The Labor Department reported Wednesday that there were 7.7 million open jobs in July, down from 7.9 million in June and the fewest since January 2021. Openings have fallen steadily this year, from nearly 8.8 million in January.

Layoffs rose from 1.56 million to 1.76 million, the most since March 2023, though that level of job cuts is roughly consistent with pre-pandemic levels, when the unemployment rate was historically low. Layoffs have been unusually low since the economy’s rapid recovery from the pandemic recession, with many employers intent on holding onto their workers.

“The labor market is no longer cooling down to its pre-pandemic temperature, it’s dropped past it. Nobody, and certainly not policymakers at the Federal Reserve, should want the labor market to get any cooler at this point,” said Nick Bunker, research director at the Indeed Hiring Lab. Bunker noted that the ratio of open jobs to unemployed job-seekers is now below where it was in 2019, and any further cooling in the job market would likely mean more layoffs.

Overall, Wednesday’s report painted a mixed picture of the job market. On the positive side, total hiring rose in July, to 5.5 million, after it had fallen to a four-year low of 5.2 million in June. And the number of people who quit their jobs ticked up slightly, to about 3.3 million. The number of quits is seen as a measure of the job market’s health: Workers typically quit when they already have a new job or when they’re confident they can find one.

Still, quits remain far below the peak of 4.5 million reached in 2022, when many workers shifted jobs as the economy accelerated out of the pandemic recession. The spike in quits at that time helped drive up wage gains as companies jacked up pay to try to find or keep employees. The current lower level of quits suggests that wage increases will likely remain modest, which should help further cool inflation.

Stephen Stanley, an economist at Santander, noted that July’s job openings are still about 7% above 2019 levels, when hiring was healthy. “Labor demand is still solid, albeit moderating,” he said.

Consumers spend, but businesses halt hiring

Wednesday’s figures indicate that fewer companies are seeking to add workers despite recent data showing that consumer spending is still growing. Last week, the government estimated that the economy expanded at a healthy 3% annual rate in the April-June quarter.

In July, job openings fell sharply in health care and state and local government and also dropped in warehousing and transportation. Openings rose in manufacturing and professional and business services, a category that includes legal services and engineering and accounting.

Even as openings have fallen for the past two years, there are still roughly 1.1 job openings for every unemployed person—a reversal from before the pandemic, when there were nearly always more unemployed people than available jobs.

The July report on job openings is the first of several measures this week of the labor market’s health that the Federal Reserve will be watching closely. If clear evidence emerges that hiring is faltering, the Fed might decide at its next meeting Sept. 17-18 to start cutting its benchmark interest rate by a relatively aggressive half-percentage point. If hiring remains mostly solid, however, a more typical quarter-point rate cut would be likelier.

On Thursday, the government will report how many laid-off workers sought unemployment benefits last week. So far, most employers are largely holding onto their workers, rather than imposing layoffs, even though they have been slower to add jobs than they were earlier this year.

On Friday, the week’s highest-profile economic report — the monthly jobs data — will be released. The consensus estimate of economists is that employers added 163,000 jobs in August and that the unemployment rate ticked down from 4.3% to 4.2%.

Last month, the government reported that job gains slowed in July to just 114,000 — far fewer than expected and that the second-smallest total in 3 1/2 years — and the unemployment rate rose for a fourth straight month.

Those figures sparked fears that the economy was seriously weakening and contributed to a plunge in stock prices.

“Together with slipping Jobs Report figures, sliding JOLTS Report indicators provide evidence that the labor market is no longer a source of inflationary pressure, and that the time to cut interest rates has arrived—or rather, had already arrived in July,” Julia Pollak, chief economist at ZipRecruiter, said. 

Late last month, Fed Chair Jerome Powell underscored the central bank’s increasing focus on the job market, with inflation steadily fading.

In a speech at an annual economic symposium in Jackson Hole, Wyoming, Powell said that hiring has “cooled considerably” and that the Fed does not “seek or welcome further cooling” in the job market. Economists saw those comments as evidence that the Fed may accelerate its rate cuts if it decides it is needed to offset a slowdown in hiring.