The US job market is finally normalizing after COVID threw it out of whack nearly four years ago.
The latest Job Openings and Labor Turnover Survey, or JOLTS report, released Tuesday revealed the ratio of job openings to the number of unemployed workers fell to 1.34, its lowest reading since August 2021.
The ratio's decline shows the labor market is coming into "a better balance" between supply and demand, according to note from Oxford Economics lead US economist Nancy Vanden Houten.
"Better balance" has been consistently mentioned by the Federal Reserve when discussing what needs to occur for inflation to return to the central bank's 2% target.
"Labor market conditions remain very strong, and the economy is returning to a better balance between the demand for and supply of workers," Fed Chair Jerome Powell said in a speech on Dec. 1. "The pace at which the economy is creating new jobs remains strong, and has been slowing toward a more sustainable level."
A graph posted on X (formerly Twitter) by Jason Furman, the former director of the National Economic Council of the United States, shows the ratio of job openings to unemployed workers is closing in on pre-pandemic levels.
Another key ingredient of a sustainably soft landing is falling into place as job openings fall from an originally reported 9.6m in Sep to 8.7m in Oct.
As a result, openings/unemployed down to 1.3 (was 1.5 last month and a high of 2.0). pic.twitter.com/DUQyRBkvJe— Jason Furman (@jasonfurman) December 5, 2023
Broadly, Tuesday's report showed job openings hit their lowest level in more than two years during October, reflecting further signs that a historically tight labor market is showing signs of softening.
There were 8.73 million jobs open at the end of October, a decrease from 9.55 million job openings in September. Economists surveyed by Bloomberg had expected there were 9.3 million openings in October.
The report also showed the quits rate, a sign of confidence among workers, remained flat at 2.3% for the fourth consecutive month and was in line with the rate seen in 2019 before the pandemic disrupted the labor market. Additionally, the JOLTS report showed 5.9 million hires were made in the month, little changed from the month prior.
Tuesday's data added to the recent market narrative that the economy is cooling while inflation continues on its downward trajectory, sparking increased investor bets that the central bank is likely done hiking interest rates.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
"Evidence of cooler labor market conditions will keep further rate hikes off the table, but we don't expect rate cuts until Q3 of next year," Vanden Houten wrote in a research note on Tuesday. "The Fed needs to be convinced that inflation is on a path back to 2% and we expect the progress toward that goal to occur gradually over the next several months."
The JOLTS report kicks off a busy week of labor market data. An update on private payrolls from ADP is expected for Wednesday morning followed by Thursday's weekly update on jobless claims. Friday will bring the Bureau of Labor Statistics November jobs report.
Economists surveyed by Bloomberg expect the report to show 189,000 nonfarm payroll jobs were added to the US economy last month, an uptick from the October report, with unemployment remaining flat at 3.9%.
Josh Schafer is a reporter for Yahoo Finance.
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