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US job vacancies fall to lowest for two years

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Job vacancies in the American economy fell to their lowest level in more than two years, helping cool the labour market and raising expectations of interest rate cuts in the world’s largest economy.

Official figures from the Labour Department showed there was a drop in job openings from 9.35 million to 8.73 million in October, below economists’ forecasts and the lowest reading since March 2021. It means there are now 1.34 jobs for every unemployed person, a sign that the red-hot labour market is feeling the effect of higher interest rates.

As in the UK, the US vacancy rate surged last year when companies’ demand for workers outstripped the number of people looking for jobs. The vacancy rate has since been falling steadily under the impact of higher borrowing costs, which deter companies from investment and hiring.

Traders reacted by buying up US government debt, forcing down the yield on two and ten-year government bonds as they bet on monetary easing from the US Federal Reserve next year.

Nancy Vanden Houten, lead US economist at Oxford Economics, said the drop in job openings would allow the Fed to keep its benchmark interest rate on hold again this month but rate cuts were not on the horizon.

“The labour market is coming into a better balance between the supply and demand of labour. Evidence of cooler labour market conditions will keep further rate hikes off the table, but we don’t expect rate cuts until the third quarter of next year,” she said. “The Fed needs to be convinced that inflation is on a path back to 2 per cent and we expect the progress toward that goal to occur gradually over the next several months.”

Mohamed El-Erian, chief economist adviser to Allianz, said the US central bank was at risk of losing control over its messaging on inflation after financial markets have begun pricing in large rate cuts for next year.

“I do believe the Fed is done raising rates but I don’t think that validates what is in the markets about rate cuts next year. [The Fed] still have a significant communication problem and they still have a credibility problem,” El-Erian told Bloomberg radio.

Separate figures that show the rate at which workers are quitting their jobs remained unchanged in October at 2.3 per cent. This “quits rate” is a closely watched indicator of wage pressures, because higher resignations suggest employees have greater bargaining power to secure better pay deals.

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