Unemployment is down, job openings are up, and the labor market is surprisingly buoyant– even amid tech layoffs and recession rumors. Despite many economists predicting downward trends in employment (with some going as far as to anticipate a recession), the Bureau of Labor Statistics released two reports last week that have shifted attitudes towards cautious optimism.
Wednesday’s Job Openings and Labor Turnover Survey (JOLTS) concerned the month of December 2022, and indicated high demand for workers as job openings ticked upward. Friday’s Employment Situation report found that the US added 517,000 jobs in January 2023, which also saw a historically low unemployment rate as well as lower wage gains. Here are three major takeaways Lightcast economists drew from the report.
The job market does not seem to be pointing towards a recession– job openings are up, and unemployment is at a record low.
Friday’s Employment Situation report detailed record low unemployment in January: at 3.4%, the US labor market is currently facing its lowest unemployment rate since 1969.
Job openings increased from 10.44 million in November to 11.01 million in December, reflecting that demand for workers has not declined nor remained stagnant as economists anticipated. At 1.92 open jobs per unemployed individual, Lightcast economists predict that the labor market will likely remain tight.
“More than 2 million people are not in the labor market because of retirement, COVID, or other reasons. It will take a lot of time to either replace those people or to bring them back on,” said Lightcast Chief Economist Bledi Taska.
For months now, high inflation, supply chain issues, and higher interest rates from the Federal Reserve have led many to brace for a recession. However, while pre-recession behavior usually implies fewer job openings and high unemployment, the BLS reported the opposite last week. The low unemployment rate and increase in job openings, although unexpected, are signs of a strong labor market.
2. Tech layoffs do not seem to be having a broader effect on the economy.
Layoffs at major tech companies did not seem to have an impact on the overall labor market in December. “I think that this tech layoff story is just not infiltrating the economy the way that people were worried about,” said Lightcast Senior Economist Layla O’Kane.
While job openings in tech decreased by 107,000, they increased in accommodation and food services (409,000), retail trade (134,000), and construction (82,000), offsetting any aggregate effects. “We’re seeing a lot of openings in the same industries where there are also a lot of layoffs, so this may be churn with people finding new jobs in their industry,” O’Kane said.
January’s low unemployment rate also did not indicate that the tech layoffs affected the market as a whole. This may be because of the limited scope of the tech sector in the economy, or because those laid off were able to find new employment quickly, have yet to file for unemployment, or have yet to transition out of their old positions.
3. The Federal Reserve's decision to raise interest rates is unlikely to change, despite the apparently healthy labor market.
In 2022, the Federal Reserve attempted to cool inflation by raising interest rates sharply throughout the year, and shifted towards moderating them in December. Friday’s report revealed a slight decrease in average hourly wage gains in January, an indication that inflation is on the decline, despite the tightness of the labor market.
As the Fed attempts the delicate task of taming inflation while preserving jobs, it is unlikely to lower interest rates in light of the wage gain decrease. The Fed will have to continue monitoring the situation, but these new findings allow for some optimism. As Lightcast Senior Economist Elizabeth Crofoot noted, “One month does not make a trend.”
Despite coming out the same week as Groundhog Day, the JOLTS and Employment Situation reports showed this strong market hasn’t been spooked by the shadows of rising interest rates or any other economic indicator. The tight labor market allows for more mobility among workers and jobseekers, but creates competition among employers, and raises the stakes for everyone involved in the market. Those planning for the future will need to make careful decisions informed by the market–which is changing rapidly. As the labor market evolves, having the latest data will allow employers, educators, and community leaders to come out stronger on the other side.