The U.S. Labor Department released Wednesday its Job Openings and Labor Turnover Survey (JOLTS) report for August, which indicated the number of American job openings dropped 10% in August to 10.05 million jobs.
A sharp drop in job openings may be troubling to American workers, but Bank of America (NYSE:BAC) economist Ethan Harris said Wednesday that it might be good news for the economy and the stock market.
The Numbers: The August drop in job openings continues a trend that has seen U.S. job openings decline by an average of 360,000 per month since March. At this point, job openings per unemployed worker have declined from a post-COVID-19 pandemic peak of 1.99 in March 2022 to 1.67 today. They still remain well below their pre-pandemic peak of 1.15.
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Harris said investors are too quick to dismiss "second tier" economic indicators like the JOLTS data.
"How can the Fed possibly forecast a return to normal inflation without a major correction in this indicator?" he said.
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Long Way To Go: Harris said the August JOLTS report was very encouraging, especially given the breadth of the job declines. In the past five months, job openings are down in all seven major economic sectors. Investors certainly reacted positively to the news, sending the SPDR S&P 500 ETF Trust (NYSE: SPY (NYSE:SPY)) sharply higher on Tuesday.
Unfortunately, Harris said the labor market is still likely at least eight months away from hitting the Federal Reserve's goal of getting job openings per unemployed worker back below its 1.15 peak in 2019.
Benzinga's Take: It may seem counterintuitive that fewer job openings would be good for the economy and for the stock market, but too many job openings are an indication of an overheating economy.
In a climate in which inflation is the biggest fear, a drop in job openings is typically a good sign.
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