Economist: The US job market is nearing an inflection point, and the pace of the Fed's interest rate cuts will “accelerate”

The Zhitong Finance App learned that David Rosenberg, founder of Rosenberg Research (Rosenberg Research) and a top economist, said that the US job market is facing a critical turning point, which may mean that the Federal Reserve will cut interest rates faster than expected.

In a report this week, Rosenberg mentioned the ratio of US job vacancy rate to unemployment rate and issued another warning to the job market. According to the US Bureau of Labor Statistics (Bureau of Labor Statistics), this indicator has declined sharply in recent months due to a slight increase in unemployment combined with a decrease in job vacancies.

According to government data, the number of US job vacancies fell to 7.6 million in July, below the peak of 12.1 million in 2022. Meanwhile, the unemployment rate in August was 4.2%.

However, Rosenberg predicts that the unemployment rate will rise faster than the rate of job vacancies falling, which will mark a critical inflection point in the job market and may highlight the need to cut interest rates more rapidly since then.

Rosenberg wrote, “We believe that rising unemployment is replacing fewer job vacancies, which will accelerate the pace and urgency of the Federal Reserve's future interest rate cuts. The driving force behind the recent V/U normalization has been reversed, which is a key insight. The unemployment rate is rising, rising 0.5% this year alone, and the vacancy rate has stabilized.”

Rosenberg has been pointing out the weakness of the labor market for several months. He previously predicted that by the end of this year, the unemployment rate could rise to more than 5%, saying this is because employers who hoarded labor during the pandemic will eventually start firing workers, leading to net unemployment in the US.

Companies have begun to signal that they are beginning to reduce recruitment or speed up layoff plans. According to a report by career transformation company Challenger, Gray & Christmas, the August layoff announcements increased 193% month-on-month. Meanwhile, the recruitment plan from the beginning of the year to August has fallen to its lowest level since 2005.

Federal Reserve officials are also cautious about the employment situation. Federal Reserve Chairman Powell said at a recent press conference that the job market may be close to a point where “further reduction in job vacancies will more directly translate into unemployment.”

Rosenberg said, “We think the recent steps represent a real inflection point in the job market. As the labor market slows, we will see more moderate changes in vacancy rates and greater changes in unemployment rates. It's not just us (think so). At last week's press conference, Powell gave essentially the same answer when asked this question.”

However, most experts agree that the job market still has a solid foundation. According to the latest employment report, the unemployment rate in August was 4.2%, which is still close to a record low. Meanwhile, economic growth also remains resilient. According to the Atlanta Federal Reserve's latest estimates, the US GDP is expected to grow by 3.1% in the third quarter.