As the Federal Reserve attempts to quell inflation by raising interest rates, concerns have lingered about the effects this process will have on the labor market. What if the Fed’s approach is too aggressive, and unemployment rates jump to a recessionary level? What if the Fed’s efforts have no impact on our historically strong labor market and inflation continues to increase? This month, the data suggests a “soft landing”–the labor market has been cooling off, but there hasn’t been widespread job loss: the unemployment rate remains steady.
The Bureau of Labor Statistics’ monthly reports, the Job Openings and Labor Turnover Survey and the Employment Situation report, provide important insight into the status of the labor market. The past few reports had sent mixed signals: January’s reports revealed an unexpectedly strong labor market, while the following months suggested gradual cooling. This month, the BLS reported that in February, both job openings and layoffs decreased, while March saw solid job growth. While a slowing economy may sound undesirable, the data suggests that workers and their jobs are overall being protected despite significant progress being made against inflation.
Here are the highlights of the two reports:
The decrease in job openings and layoffs suggests that laid-off workers are able to fill open positions.
In February, job openings fell by 632,000 to yield 9.93 million open positions.
While 9.93 million job openings is still notably high, the decrease is significant, indicating that the market is backing off its record tightness of the past few years. The drop in openings reflects that our economy is cooling at a healthy rate: instead of twice as many openings per available worker, there are now 1.6 job openings remaining per every individual unemployed.
Layoffs declined by 215,000, to 1.5 million total layoffs.
The decrease in layoffs is an indicator that the economy, despite cooling, is not heading towards a recession. It also suggests that the layoffs seen in the tech industry are not having a significant impact on the labor market as a whole, reflecting a pattern seen in earlier reports.
The simultaneous decrease of openings and layoffs could mean that laid-off workers are able to fill open positions, revealing that the slowing of the labor market is not harming workers.
“What we’re most likely seeing is companies eliminating the job openings, but not laying off the workers,” said Lightcast Senior Economist Layla O’Kane.
2. Industries that seemed to drive inflationary wages cooled more than others, whereas industries that were struggling to fill openings saw more success.
Supply-chain focused industries saw complications during and after the pandemic, which put pressure on the economy and led to inflation. The BLS data revealed that job openings fell by 145,000 in the Transportation, Warehousing, and Utilities sector and by 38,000 in Manufacturing. As the supply chain cools and returns to pre-pandemic efficiency, the effects may carry on down the line and reduce retail prices.
“The sector that was really driving intense pressure on the economy was the supply chain,” said Lightcast Senior Economist Ron Hetrick. “That has now unplugged and is showing its clearest signs yet of returning back to normal.”
In March, sectors that had struggled to find workers after the pandemic increased in employment. The Leisure and Hospitality sector grew by 72,000 jobs, and the Healthcare and Social Assistance sector added 51,000 jobs. Both sectors’ rates of employment are below their pre-pandemic levels, but the steady increase in jobs paired with the decrease in openings seen in both sectors in February could mean that workers are slowly moving to these sectors from other occupations. Construction, a sector that has lately been struggling to fill positions, continued its downward employment trend.
In the tech industry, layoffs and quits decreased slightly in February, although the unemployment rate for the tech-related occupations increased slightly in March.
“The important thing to keep in mind is that the rates for those groups are so low overall,” said Lightcast Senior Economist Rucha Vankudre. “The average unemployment rate is 3.5%, but in those occupations it tends to be somewhere closer to 2%, which is a very low number. We are seeing slight increases, maybe from where we were a year ago at 1.6% to maybe 1.8%, but that’s really a very small increase."
While the tech layoffs from previous months were reflected in the data, the change did not seem to pose a problem for other industries or for the economy as a whole. In March, the report revealed that employment in the Professional and Business Services sector, which accounts for many tech jobs, increased by 39,000.
The labor market is continuing to add jobs, but at a slower rate than previous months. While some sectors are seeing significant increases, others are seeing a decline in employment, suggesting that sectors that were disproportionately strong before are now cooling down, allowing workers to fill vacant positions in less successful sectors.
3. Wages are continuing to increase at a slower rate, reducing upwards pressure on inflation.
In March, average hourly earnings increased by 0.3%, or 9 cents, to an average wage of $33.18. Overall wages are up 4.2% since last March, reflecting a gradual decline in year-over-year wage increase.
The Consumer Price Index for March showed prices are up 5% over the past twelve months, the lowest year-over-year mark since May 2021. So while the increase in worker earnings has slowed, inflation has slowed faster: another indicator that the economy is responding well to the Fed’s attempts at a soft landing.
As the labor market cools, it is clear that each sector of the economy responds differently to aggregate trends. It will be important for employers to remain on top of the latest trends in order to meet their employment goals despite the rapid changes taking place.