Sectors are slowing down, fewer people are quitting their jobs, and open positions are decreasing. The labor market is still very strong–both wages and employment increased slightly–but new indicators suggest it is slowly but surely cooling.
Earlier this month, the Bureau of Labor Statistics (BLS) released its monthly reports on the status of the US labor market. The Job Openings and Labor Turnover Survey (JOLTS) revealed that job openings declined from 10 million to 9.6 million in March, while layoffs increased to 1.8 million. These indicators reveal that the labor market is continuing to slow down from the historically low unemployment seen earlier this year. The Employment Situation report showed that in April, unemployment edged down slightly to 3.4%, and average hourly wages increased by 16 cents. While March pointed to significant cooling, April proved to be a particularly strong month. There may be a long way to go before the Federal Reserve achieves its goal of driving down inflation, but the process seems to be working so far.
With the Fed raising interest rates to the highest levels since before the 2008 financial crisis, it will be important to monitor the labor market closely to ensure that the fight against inflation doesn’t have an adverse effect on workers. “This is a little bit like when you’re making a hard boiled egg and you’re trying to time it exactly, to get that soft middle (or that soft landing),” said Lightcast Senior Economist Layla O’Kane. “I think we’re kind of approaching that nice jam center, and hopefully we’re not going to get to the point where it’s too hard boiled and overdone.”
Here are the major takeaways from the reports:
Job openings declined and separations increased–but the labor market remains strong.
In March, job openings ticked down 4% to 9.6 million, and layoffs increased from 1.6 million in February to 1.8 million.
While these rates are still far above their pre-pandemic levels, the gradual decline in openings suggests that the labor market is on the right track.
2. Each industry is reacting differently to the market cooling, and the trends reveal interesting insights about the overall behavior of the labor market. Here are some areas of the labor market that especially stood out:
The tech layoffs that took place earlier this year seem to be slowing, and the increase in job openings could be an indicator that the industry is beginning to return to normal, but with a smaller workforce.
The majority of jobs in the tech industry are categorized by the BLS within both the Professional and Business services sector and the Information sector. In April, Professional and Business Services saw an increase of 43,000 jobs and a simultaneous increase in layoffs. The Information sector added only 1,000 jobs, but saw a decrease in layoffs. While the minimal activity in the Information sector may seem like a red flag for tech workers, it is important to note that the unemployment rate in the Information sector remains very low at 1.4%.
The Warehousing and Wholesale Trade and Transportation sectors saw an increase in layoffs in March, pointing to a decrease in consumption of goods. It will be important to note the effects of this slowing, and how the impact of a cooler supply chain carries over into other sectors.
“It’s just part of that narrative of slowing down the economy and it starts with those good producing sectors, while consumers are still very actively spending money on services,” said Lightcast Senior Economist Elizabeth Crofoot.
The Healthcare sector saw 42,000 layoffs in March, which is unusual behavior for an industry that usually sees high demand for workers due to the aging population. Earlier this month, the Wall Street Journal reported that employment for temporary nurses at a number of hospitals had declined since last April, and more nurses seemed to be returning to traditional roles at hospitals. In April, the healthcare sector added 64,000 jobs.
“There’s a shift in the medical industry right now where nurses may be shifting from really high wage, high pressure demand areas to going back to where the demand, or the hospital jobs are,” said Crofoot. “[Nurses] want to have a contract for longer than a few months at a time. They’re not sure what the economy is going to look like, so this uncertainty is sort of pushing them back into a little bit more of a stable position,” said O’Kane.
Accommodation and food services
While wages for many white-collar jobs decreased in April, the wages for many service-based positions increased. As consumers continue to invest in services rather than goods, the demand for workers in service-based industries remains high. High wages are not only reflective of high consumer demand, but also a need to retain workers.
“If you drop your wages, one of two things is gonna happen. Either your quality of worker's is going to go down, or you just will end up with no workers,” said Lightcast Senior Economist Ron Hetrick.
In March, layoffs increased in the Accomodation and Food Services sector by 63,000, but job openings simultaneously increased. This could be indicative of the sector reorganizing in the context of higher demand, or consumer behavior changing slightly in terms of what types of services they consume.
The Construction sector has seen a decrease in workers this year, likely due to the unappealing housing market. As interest rates increase, fewer people are inclined to buy new properties, which means less building and less renovating. Demand for housing remains high, but with few active properties on the market and high home prices, the real estate market has been less active. The Construction sector saw more layoffs in March than any other sector, at 122,000 layoffs.
3. The effects of the Fed’s raised interest rates are beginning to become more apparent.
In March, the Commerce Department reported that the GDP had increased by only 1.1% for the first quarter, compared to the last report of a 2.6% increase. The GDP is still increasing, but the slower rate is a sign that attempts to cool the economy are having a significant impact. The growth is also an indicator that the economy is not technically in recession, meaning that a soft landing is not far away.
For the past few months, wages have also been increasing at a slower rate, an indicator that wage-based inflation may be slowing down. Though the rate of change ticked up slightly in April (at 0.5% compared to March’s 0.3%), the overall trend shows promise for cooling.
The past few months have looked promising in terms of achieving a soft landing. Inflation is slowly coming down without having too much of an adverse effect on the workforce. The slight increase of wages and employment in April, however, indicates that our labor market is still resilient. In the context of a banking crisis and a shift in consumer behavior, the Fed will need to keep a close eye on the labor market to best inform their next plan. As employers and jobseekers also adjust to this unique market, it will be important to stay informed with accurate data to make the best possible career decisions.