Job Market Outlook: Unemployment to Accelerate, Usher Steeper Rate Cuts

• The job market is about to see a big shift that could bring faster Fed rate cuts, David Rosenberg said.
• The top economist predicted unemployment would soon accelerate, surpassing the change in job openings.
• That will emphasize the need for faster Fed rate cuts, he said in a note to clients.

The job market is reaching a key turning point that could mean the Fed will cut rates way faster than markets currently expect, according to top economist David Rosenberg.

The Rosenberg Research founder cast another warning on the US job market in a note this week, pointing to the ratio of the job vacancy rate to US unemployment. That metric has plummeted in recent months because of both the unemployment rate edging higher and also because job vacancies have fallen, according to the Bureau of Labor Statistics.

Nationwide, job openings fell to 7.6 million in July, government data shows, down from a peak of 12.1 million notched in 2022. The unemployment rate, meanwhile, came in at 4.2% in August.

But the jobless rate is on track to rise faster than vacancies will fall, Rosenberg predicted. That will mark a key inflection point in the labor market, which could underscore the need for steeper rate cuts from here on, he said.

“We think we’ve reached the point where rising unemployment is taking over declining vacancies, which will accelerate the pace and urgency of Fed cuts going forward,” Rosenberg wrote. “More recently — and this is the key insight — the driving force behind the V/U normalization has reversed. It’s the unemployment rate that’s moving up (+0.5 percentage points this year alone), while the vacancy rate has stabilized.”

Rosenberg has flagged weakness in the labor market for months, previously predicting that the unemployment rate could rise past 5% by the end of the year. That’s because employers hoarding labor from the pandemic will eventually start to let go of workers, he said, resulting in net job losses in the US.

Companies are already flashing signs that they’re beginning to pull back on hiring or ramp up their firing plans. Job-cut announcements climbed 193% in August from the prior month, according to a report from the career-transitioning firm Challenger, Gray & Christmas. Meanwhile, hiring plans from the start of the year through August have fallen to their lowest levels since 2005, it added.

Fed officials have also expressed caution over the employment picture. The job market could be close to a point where “further declines in job openings will translate more directly into unemployment,” Fed Chair Powell said in a recent press conference.

“We think that the recent move represents a genuine inflection point in the labor market,” Rosenberg said. “As the labor market eases, we’ll see more modest changes in the vacancy rate and larger changes in the unemployment rate. It’s not just us. When asked about this in the press conference last week, Chairman Powell said essentially the same thing.”

Most experts, though, agree that the job market remains on solid footing for now. The unemployment rate remains near historic lows, clocking in at 4.2% in August, per the latest jobs report. Economic growth also remains resilient, with GDP estimated to grow 3.1% in the third quarter, per the latest Atlanta Fed estimates.