Job Market Cools, But Not by Much: JOLTS and Jobs

Last week’s reports from the Bureau of Labor Statistics revealed a surprisingly bullish labor market, contradicting expectations that the market would reflect a pre-recession economy.  Wednesday’s Job Openings and Labor Turnover survey revealed a tick down in job openings in January, from a revised 11.2 million down to 10.8 million–a smaller decrease than expected, and an indication that the labor market is still tight. Friday’s Employment Situation report reflected an employment increase of 311,000 in February, higher than anticipated, with a simultaneous increase in unemployment to 3.6 percent. These statistics point to greater implications for our labor market. 

Here are four key trends:

1. The labor market seems to be cooling slightly, but remains very tight

January’s decrease in job openings and February’s decrease in unemployment both indicate a slowing job market, although the breadth of these numbers suggest that the market remains strong. The decrease in people quitting their jobs in February, although another indication of market cooling, was seen mainly in the Professional and Business Services industry. 

This industry overlaps with the tech sector, meaning that the decrease in quits could be explained by the increase in tech layoffs, as workers felt less secure and held onto their jobs. Although the general downward tick may not seem significant, it could be an indicator that the market is slowing, in line with the Federal Reserve’s goal to quell inflation. The Fed will need to continue monitoring the market closely, preserving jobs while attempting to keep the money flow in check. The Fed’s decisions will also depend on the failure of Silicon Valley Bank, which happened the afternoon after the Friday jobs report was released.

“This report should be encouraging, but it’s not a be-all, end-all report for the Fed,” said Lightcast Senior Economist Layla O’Kane. “The hope is that we’re not going to completely obliterate the labor market in cooling inflation and interest rates.” 

2. Tech layoffs did have an impact on certain sectors of the labor market, but the BLS reports did not indicate a broader trend of layoffs.

The tech sector aligns with two industries for which the BLS collects data: the Information industry and Professional and Business Services. While layoffs across the entire labor market increased by 241,000, 190,000 of these layoffs occurred within the Professional and Business Services sector. Although layoffs may seem to be symptomatic of an impending recession, Lightcast economists report that this outcome is the result of a reduced demand for tech workers after over-hiring during the pandemic. Because this is specific to the tech industry and circumstantial, the layoffs do not seem to be the result of recessionary economic trends.

3. Employment trends varied sector by sector, suggesting that the slowing seen in certain industries is due to changes in consumer spending rather than recessionary trends.

The transition out of the pandemic caused a shift in consumer spending, as consumers became more likely to purchase services over goods. This shift is apparent in February's report: employment declined in Transportation and Warehousing, suggesting that there was less demand for the movement and storage of consumer goods, but increased in in-person services, such as restaurants and hospitality. 

“As long as consumer spending occurs, then it's really hard to imagine that you could have recessionary conditions,” said Lightcast Senior Economist Ron Hetrick. “You need this decline in GDP, but that's accompanied by a spike in the unemployment rate. Well, if people are just shifting what they buy from one sector to another, you really don't see this drop off.” 

While employment decreased in some sectors, it increased in others, making it difficult to use last week’s report to point towards a single, overarching trend. While this churn seems to be a result of consumer behavior, it will be important to monitor the unemployment situation in the coming months. “It’s really, increasingly hard to talk about just one labor market when there are so many different experiences,” said Lightcast Senior Economist Elizabeth Crofoot. 

4. The post-pandemic labor market has proven to be resilient, meaning that the cooling process may differ from years past.

The labor market has been maintaining momentum, contradicting government policy. Both Construction and Real Estate, two industries that are particularly sensitive to interest rates, remained strong in February despite the Fed’s frequent raising of interest rates. Wage gains also increased on average, suggesting that the labor market is not as sensitive to Federal policy as expected. The Fed will need to tread lightly as they deduce new ways to combat inflation without adverse effects, especially in the wake of the Silicon Valley Bank failure.

“There are fewer unemployed people now than there were in February of last year, despite the fact that we've added two and a half million people to our labor force,” Crofoot said. This new, resilient labor market is not consistent with the onset of a recession. Unemployment is still low, job openings are still high, and the slight cooling in job turnover and quit rates is likely the result of tech layoffs rather than macroeconomic factors. The post-pandemic successes of the labor market relieve some stress about the status of the economy, however, policymakers will need to keep an eye on wages as inflation remains high. 

The labor market has been changing month-by-month, with differing changes in each sector. The unpredictability and granularity of these changes can be difficult to keep up with, especially for employers in turbulent industries. Having relevant, up-to-date data can make shifts in the market easier to navigate, adding clarity to a complex economic climate.