The U.S. labor market is starting to look more like what it used to be before the pandemic.
Federal Reserve interest rate hikes have dampened investment, brought booming industries back to earth, and kept workers on the job rather than jumping to higher wages.
Employers added 187,000 jobs in August, the Labor Department said Friday, with numbers for the previous two months revised downward. This brings the three-month average to 150,000, a marked slowdown from the previous 29 consecutive months of 200,000 and slightly lower than the 2019 average pace of 163,000. Ta.
The question is whether the cooling will continue to the level of a real freeze, as borrowing costs remain high and pressure on consumer spending mounts.
“I think the workforce is finally recovering to where it was before the pandemic,” said Chris Chmura, CEO of Chmura Economics and Analytics. “But when we step back and look at broader trends in the economy, we cannot rule out the possibility of a recession next year.”
The Fed wants to limit price increases without triggering a painful recession, and has confidence that the labor market is accommodating enough to reduce the risk that excessive demand for goods and services will reignite the inflation problem. I’m looking for it.
The rise in the unemployment rate in August from 3.5% to 3.8% provides some evidence of that. The difference is due to his 736,000 more people working or looking for work, pushing up overall wages. labor participation rate It rose to 62.8%, within 0.5 percentage point of its pre-pandemic high.
Slightly slower-than-expected wage increases have also exacerbated the situation, with hourly wages increasing by 4.3% year-on-year, roughly on par with the pace of wage increases since spring. The August report strengthened market expectations that the Fed would keep interest rates on hold at its next meeting in mid-September as it waits to assess the impact of its 5 percentage point hikes over the past year and a half.
Recent employment numbers may be subject to further revision. The Bureau of Labor Statistics has already indicated that job growth is expected to weaken slightly once the annual benchmarking process is completed.
But the overall trajectory suggests that the labor market, while not as hot as it was at the height of the pandemic recovery, may be smoothing out in a better way than it was before 2020.
“The good news is that conditions are more favorable to workers than we have been accustomed to over the past 25 years,” says Justin Brusch, an assistant professor of economics at Cornell University. Moreover, he noted that stability has its own benefits. People are more likely to join the workforce if they feel confident that they can stay there for a while.
“We’re starting to see an era in which how long a good labor market lasts is less important than how good a good labor market is,” Dr. Brusch said.
Much of the slowdown is attributable to industries that are returning to more typical levels after the disruption caused by the pandemic. Exhibit A: Trucking grew to provide stay-at-home online shopping, but shrunk as the economy slowed.Salary calculation for a trucking company flattened Many contract owner-operators have also parked their rigs over the past year, likely masking the complete decline.
Last month, the industry cut about 37,000 jobs at once with the bankruptcy of Yellow, which employed about 30,000 drivers and other staff. If the spike in first-time unemployment insurance claims in mid-August is any indication, most of these drivers didn’t find new jobs right away.
“The trucking job market has gone from being unbearably tight in 2021 and early 2022 to being as relaxed as it has been since the immediate aftermath of the Great Recession,” said Kenny Wiese, president and senior analyst at ACT Research. Ta. “Yellow has removed more than 20,000 drivers from the market, marking the beginning of efforts to control supply.”
But it’s not just the trucking industry. The rest of the labor market is also returning to equilibrium, with the number of job openings per unemployed person falling from more than 2 at the beginning of 2022 to about 1.5 in July, with employers’ appetite for work largely satisfied. indicates that there is The temporary services industry has lost 185,000 jobs over the past year as employers have less need for additional temporary workers and can rely more on permanent employees.of Average number of working hours Weekly wages have also decreased and overtime has become less important now that payroll has been paid.
That matches what Kevin Vaughn has seen at his collection of six bars and restaurants in Chicago. Summers are very busy, and this past year he has had to fight to keep his cooks and servers. But recently, more qualified job seekers are in need of work as law firm start dates have been postponed, he said. He worries that his customers will have fewer nights out with friends now that student loan payments have resumed, but it has helped maintain stable staffing levels. is made of.
“Now we’re more focused on cost,” Vaughan said. “And people who are already on a payroll are becoming more focused on, ‘I need to make money, I have expenses, I need to go to work.'”
As the hiring frenzy subsides, employment growth will be focused on a few industries that are still recovering, such as leisure and hospitality, or industries that can expect sustained demand due to structural factors in the economy, such as private healthcare and education services. It is being These two broad sectors accounted for 85% of the job growth over the past three months. Both are also disproportionately supplied by immigrants and women, groups who enter the workforce at rates that surprise many analysts.
“At some point, you’re going to see the leisure and hospitality side run out of steam,” said Stephen Juneau, an economist at Bank of America Merrill Lynch. “Health services are structurally supported by an aging demographic, and hospital funding is just getting back to normal. What will we be left with once that support leg falls off? Do you want it?”
One possible answer is renewable energy on the goods-providing side of the economy. Construction has remained surprisingly resilient. Housing construction has slumped under the pressure of rising interest rates, and office construction has stalled due to high vacancy rates, but demand is increasing due to funding for public infrastructure and tax breaks for renewable energy equipment and semiconductor factories. is imminent.
Demand for cement, a leading indicator of construction employment, is expected to fall by 2% this year after 13 years of continuous growth. But Ed Sullivan, chief economist at the Portland Cement Association, believes federal spending on roads, bridges and other infrastructure will fuel the turnaround next year.
“We haven’t seen a lot of demand yet, but that demand is starting to show up,” Sullivan said. So far, a long backlog has prevented major layoffs. “There hasn’t been a significant negative impact on employment because we still need drivers, contractors, etc.,” he said.
Much of its construction spending is on new factories, which indicates that: manufacturing employment It was flat in 2023, but could rise next.