US job openings hit 2-year high as hiring stays sluggish

US job openings climbed to a two-year high in May, data from the Bureau of Labor Statistics showed Tuesday, even as hiring failed to keep pace — a dynamic that could keep the Federal Reserve on a hawkish footing.

"The rise in openings without a corresponding pickup in hires suggests employers are struggling to find the right talent rather than expanding headcount aggressively," said Sarah House, senior economist at Wells Fargo.

The JOLTS report showed job openings exceeding the consensus estimate of 7.36 million and the prior month's 7.61 million, reaching the highest level since mid-2024. Hires edged up only marginally, while the quits rate — a gauge of worker confidence — held at 1.9%, below the 2.3% average seen in 2022. Layoffs remained low at 1.1%, indicating employers are holding onto existing staff even as they hesitate to add new positions.

The data complicates the outlook for Fed Chair Kevin Warsh, who has signaled a willingness to hold rates steady as inflation remains elevated. With the Fed's preferred inflation gauge at a three-year high of 4.1%, a tightening labor market reduces the case for any near-term easing. OIS markets now price a hold at the next meeting, with the first cut not fully priced until early 2027.

A labor market in two speeds

The divergence between openings and hires points to a structural mismatch rather than broad-based demand growth. Job openings have now risen for three consecutive months, yet the hiring rate remains below pre-pandemic averages. The ratio of openings to unemployed workers — a metric the Fed has closely tracked — has widened again, signaling that employers are competing for a limited pool of available talent.

The quits rate has been stuck near 1.9% for months, well below the 2.7% peak reached in 2022 when the "Great Reshuffling" was in full swing. That suggests employees are less willing to switch jobs, a sign of cooling confidence in the labor market's ability to absorb risk. The last time the quits rate was this low relative to openings was in the months before the pandemic, when the labor market was similarly tight but workers were more cautious about moving.

Dollar rallies as rate-cut bets fade

For the Federal Reserve, the JOLTS data adds to a growing body of evidence that the labor market remains too tight to justify rate cuts. The core PCE price index rose 4.1% from a year ago in May — the highest in three years — while the economy expanded at a 2.1% annual pace in the first quarter, revised up from an earlier estimate of 1.6%.

Fed Chair Warsh, who took office earlier this month, has struck a notably hawkish tone, reversing market expectations for rate cuts that had built up earlier in the year. The dollar has rallied 2.5% in June, the biggest monthly gain in nearly a year, as traders repriced the rate outlook. The dollar index stood at 101.36 on Monday, while the euro slipped to $1.1387 and the yen languished near a 40-year low at 161.75.

Treasury yields have also moved higher, with the two-year note — the most sensitive to Fed policy — reflecting the shift in expectations. The S&P 500, meanwhile, has struggled, finishing last week 0.1% lower as the AI-driven tech rally showed signs of fatigue.

Jobs report looms

Thursday's nonfarm payrolls report will provide the next major test of the labor market's trajectory. Economists expect 135,000 jobs were added in June, with the unemployment rate holding at 4.3% and average hourly earnings rising 0.3% month over month. A print above expectations would further cement the case for higher-for-longer rates, while a miss could revive bets on an earlier easing cycle.

The payrolls data, combined with the JOLTS report, will shape the narrative heading into the Fed's next meeting. For now, the message from the labor market is clear: jobs are plentiful, but the path to actually getting one — and the confidence to leave one — is more complicated than the headline numbers suggest.

This article is for informational purposes only and does not constitute investment advice.