December JOLTS Report Preview: Will the Labour Market Cool or Stay Hot?

TradingKey - Investors looking towards the potential for interest rate cuts by the US Federal Reserve (Fed) are studying a variety of incoming data points. One of the many important ones is the JOLTS (Job Openings and Labor Turnover Survey) report for December 2024. That’s scheduled for release on Tuesday 4 February.

It measures the level of job openings in the US economy and could also turn out to be the Fed’s next key puzzle piece, making it a must-watch for stock market investors. Picture the US economy as a steaming cup of coffee – too hot, and you burn your tongue (and investments) but too cold, and it loses its appeal. 

With stock prices already climbing in anticipation of rate cuts, this report will reveal whether the Fed’s work is done or if more cooling is needed.

A labour market running too hot, with surging job openings and wages, could delay rate cuts, pressuring growth sectors like tech. But if JOLTS signals cooling, with fewer openings, stable wages, and balanced hiring, it could confirm a path toward rate cuts, extending the market rally. 

This report is the next test of whether the economy lands smoothly or faces turbulence ahead. Here’s what to expect from the upcoming December JOLTS report. 

Job openings: Possible decline ahead

Job openings surged to 8.1 million in November 2024, highlighting strong employer demand. However, December may see a pullback, with forecasts suggesting openings could dip to around 7.64 million. 

This expected moderation aligns with December’s payroll data, which showed a robust 256,000 jobs added, suggesting some of the earlier demand for workers has been filled.

Think of it like a retail store after the holiday rush – demand is still there, but businesses may be cautious about overcommitting as they reassess economic conditions.

Hires and quits rates

Hires and quits together offer a snapshot of how smoothly the labour market is functioning. December 2024’s payroll report highlighted sector-specific strength, with 43,000 jobs added in retail and steady growth in healthcare, suggesting robust hiring in consumer-driven and essential industries. 

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

For December, strong job gains might imply some sectors, particularly retail and hospitality, saw elevated quits as employees moved to higher-paying or more secure roles. A stable quits rate would suggest the labour market is finding a sustainable balance between supply and demand.

Wages the crucial indicator for the Fed

Meanwhile, December 2024’s payroll data revealed continued wage growth, though at a moderated pace, which could ease inflation concerns. 

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

What do investors need to watch out for?

There are a number of things to watch but one key ratio – the openings-to-unemployed ratio – is something to consider. This ratio shows how many job openings are available per unemployed worker and serves as a key indicator of labour market tightness. 

A drop closer to 1.0 (from 1.1 in November) would indicate the market is stabilising, with fewer positions chasing workers. This would be positive news for those hoping for rate cuts, as it suggests the labour market is cooling without tipping into outright weakness.

Furthermore, investors need to pay close attention to which sectors are doing the heavy lifting. 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. 

Why does it all mean for investors?

A hotter-than-expected labour market could mean short-term turbulence, particularly 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 respond 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. 

Either way, the December JOLTS report will give us clues about where the economy, and the market, might be heading to in the short term.