(Bloomberg) — Economists and some Federal Reserve officials are increasingly alert that pain may be on the horizon for American workers amid signs that the labor market is losing steam.
Most Read by Bloomberg
Companies are posting fewer jobs this year and fewer workers are leaving as unemployment has begun to rise from low levels, signaling the end of the historically tight working conditions that characterized the rapid recovery from the pandemic shock.
Strong employment has so far helped the economy weather the Fed’s aggressive tightening, which has pushed interest rates to their highest levels in two decades. With inflation still above the central bank’s 2% target, the fear is that any further easing of working conditions could start to snowball and jeopardize economic growth.
“Any change in the outlook for the labor market could have important implications for the direction of the economy and monetary policy,” said Rubeela Farooqi, chief US economist at High Frequency Economics. “If there’s one thing we know for sure, it’s that conditions change very quickly.”
Two key reports this week from the Bureau of Labor Statistics — Tuesday’s monthly update on job openings and Friday’s on broader employment trends — will provide more data on where the labor market is headed.
Last month’s release of the Job Openings and Labor Turnover Survey, known as JOLTS, showed total job listings fell in April to 8.1 million, a three-year low. That’s more than a third from the peak of 12.2 million reached in 2022, when employers hampered by labor shortages were struggling to keep up with a surge in demand as the economy reopened.
There are now just 1.2 postings for every job seeker, similar to pre-pandemic levels. The dropout rate, at 2.2% in April, has also returned to pre-Covid-19 levels.
Kelly Bonn, a headhunter and executive coach in St. Petersburg, Florida, said inquiries from job seekers seeking help are up about 30% since the end of 2023. Finding a job can often take two to five months now, compared to one or two months in 2021 and 2022, according to Boni.
“Employers are definitely taking their time and being more selective about who they bring in,” she said. Meanwhile, those who have jobs have become more careful to leave stable positions for new opportunities: “They don’t want to remain unemployed in this market”.
Fed officials are still largely bullish on the state of the labor market, although they are beginning to acknowledge risks to the upside.
“Overall, we’re looking at what’s still a very strong labor market, but not the overheated labor market of two years ago or even a year ago,” the Fed chairman told reporters on June 12. , Jerome Powell, as central bank officials kept rates on hold. unchanged and reduced forecasts for cuts in 2024.
‘Tipping Point’
The question some economists are now asking is whether the market is also more vulnerable to a downturn. Goldman Sachs chief economist Jan Hatzius recently described it as at a potential “inflection point,” where a further material softening in demand for workers will be registered in higher unemployment rather than just fewer openings.
“The coming slowdown in the labor market could translate into higher unemployment as firms need to adjust not only to vacancies but also to current jobs,” San Francisco Fed chief Mary Daly said in a speech June 24. “At this point, inflation is not the only risk we face.”
Monitoring the labor market for that potential turning point has become more challenging in recent months, with various indicators in the monthly BLS employment report sending conflicting signals.
On the one hand, the data showed that employers have added an average of 248,000 jobs per month so far this year, a robust pace that beat economists’ expectations, perhaps driven in part by a surge in immigration.
But the unemployment rate – derived from a survey of households rather than businesses – rose to 4% in May, from a low of 3.4% last year.
“We are left with unclear results and we have to deal with that uncertainty around the data,” Powell said on June 12.
Making this moment even more critical for the Fed is the awareness based on past experience that labor market losses can quickly pile up once they begin. Unemployment rose gradually from 4.4% in March 2007 to 5.1% a year later as the economy slowed amid the onset of the financial crisis. As the recession took hold, the unemployment rate rose faster, reaching 7.3% at the end of 2008 before reaching 10% the following year.
So far, employment and wage growth have remained stable in the data. But the background has clearly changed. One sign of that: Employers have largely stopped offering the big incentives they were offering to attract new hires in recent years, said Becky Frankiewicz, president of North America at ManpowerGroup, a staffing services company.
“It was almost, what can we do with the workers to get their attention?” Frankievicz said. “All of this has really stabilized. Now it’s back to much more basic pay.”
Most Read from Bloomberg Businessweek
©2024 Bloomberg LP