JOLTS December Report: What Investors Need to Watch Out For

Investors looking towards the potential for interest rate cuts by the US Federal Reserve (Fed) are studying a variety of incoming data points.

Investors are keeping a close eye on the upcoming Job Openings and Labor Turnover Survey (JOLTS) report for December 2024, as it could provide valuable insights into the state of the US labour market and its implications for interest rates.

The report, scheduled for release on Tuesday, 4 February, is expected to show a slight decrease in job openings compared to the previous month. Forecasts suggest that openings could dip to around 7.64 million, down from 8.1 million in November 2024.

This moderation in job openings aligns with the recent payroll data for December, which showed a robust addition of 256,000 jobs. The strong job gains, coupled with the anticipated decrease in openings, could indicate that some of the earlier demand for workers has been met.

The hires and quits rates, which offer a snapshot of how smoothly the labour market is functioning, will also be in focus. December's payroll report highlighted sector-specific strength, with 43,000 jobs added in retail and continued growth in healthcare, suggesting robust hiring in consumer-driven and essential industries.

However, hires in professional services and manufacturing will provide crucial insights into whether broader labour demand is holding up. The quits rate, which remained stable at 1.9% in November, reflects worker confidence. When people voluntarily leave their jobs at a higher rate, it signals optimism about finding better opportunities.

Strong job gains in sectors like retail and hospitality might indicate elevated quits as employees move to higher-paying or more secure roles. A stable quits rate would suggest that the labour market is finding a sustainable balance between supply and demand.

The JOLTS report's wage trends will also be closely monitored, especially in light of the December payroll data which revealed continued wage growth, albeit at a moderated pace, easing concerns about inflation.

With robust hiring, particularly in consumer sectors, the JOLTS report's wage trends will be a critical focus. If wages show signs of stabilising or slowing, it may signal that the labour market is cooling enough to keep inflation in check and, thus, support Federal Reserve rate cuts this year.

Wages present a delicate balancing act for the Fed. Too much growth could delay rate cuts, while slower wage gains might support the ongoing stock market rally.

Investors should also pay attention to the openings-to-unemployed ratio, which indicates the number of job openings available per unemployed worker. A drop closer to 1.0 (from 1.1 in November) would suggest the labour market is stabilising, with fewer positions chasing workers.

This would be positive news for those hoping for rate cuts, as it indicates that the labour market is cooling without becoming too weak.

Additionally, investors should note which sectors are driving the job gains. Continued strength in healthcare and government hiring would signal stability in foundational industries, while declines in retail or manufacturing might hint at waning consumer demand.

These trends can offer clues about the broader economy and which areas of the market could see more growth.

A hotter-than-expected labour market could lead to short-term turbulence, especially for growth stocks that are sensitive to interest rates.

On the other hand, signs of cooling such as fewer job openings or slowing wage growth could reassure investors and help extend the recent market rally. Keep an eye on how big indices like the S&P 500 Index or Nasdaq 100 Index perform after the report drops.

The labour market isn't just a numbers game; it's a window into how businesses and consumers are feeling about the future. If job openings hold steady or rise, it's a sign that companies are optimistic. On the other hand, a sharp drop could indicate caution.

Ultimately, the December JOLTS report will provide valuable insights into the state of the US labour market and its implications for the economy and investors at large.