The US labor market is exhibiting signs of deceleration, with job gains in the past three months falling below 200,000, marking a concerning trend, and the unemployment rate has soared to an 18-month high, accompanied by a notable drop in job openings to a two-year low in July.
One significant shift is the diminishing advantage experienced by job-hoppers, a group that greatly benefited from the pandemic-era labor market. According to economists at Bank of America led by Michael Gapen, wage gains for job switchers are now only marginally higher than those who remain in their current positions.
Recent data from the Atlanta Fed reveals that the three-month average of annual wage growth for job switchers plummeted to 5.6% in August, down from 8.5% in July 2022. This figure barely surpassed the 5.2% wage growth observed among those who retained their current positions last month.
Overall wage gains for August stood at 5.3%, marking a decline from the peak of 6.7% recorded in the same period the previous year. Bank of America noted, “The moderation in wage inflation appears to be mostly driven by wage growth for job switchers,” and emphasized that the gap between wage growth for job switchers and job stayers has significantly narrowed.
The drop in the quits rate from last week’s JOLTS report is another indicator of a less dynamic labor market for those seeking new opportunities. Despite some economists viewing the recent rise in the unemployment rate as a positive sign due to increased participation, Preston Mui, an economist at Employ America, cautioned that this shift may not necessarily signify a robust labor market.
The monthly jobs report categorizes the population into three main groups: those actively employed, those in search of employment, and those not currently seeking work. Mui highlighted that this report may not always capture rapid status changes among workers, such as transitions between jobs, retirement, or temporary hiatuses.
Since the onset of the pandemic, the labor market has exhibited remarkable dynamism, with demand for workers surpassing available supply. This dynamic prevented many workers from registering as job seekers, leading to a significant drop in the unemployment rate to historic lows.
However, as the labor market slows, individuals in transition between roles are spending more time seeking employment and are slower to exit the workforce upon job loss. Fewer retirements and delays in reabsorbing previously laid-off workers may contribute to this shift.
Despite the apparent slowdown, total employment remains at its highest levels since the pandemic. Mui emphasized that while the labor market is indeed decelerating, it is still robust.
For the Federal Reserve, which aims to achieve a “better balance” in the labor market, the moderation in wage gains and a shift in the speed at which workers switch jobs indicate progress toward their goal. This could also contribute to stabilizing inflation rates, drawing it closer to the 2% target.
Bank of America stated, “While wage inflation remains above the 3 to 3.5% level that we judge to be more consistent with the Fed’s two-percent target,” they added, “the moderation of wage inflation should limit upside risks to price inflation.” This suggests that although wage inflation remains elevated, it may be stabilizing, potentially curbing upward pressure on prices.
In conclusion, the recent trends in the US labor market, coupled with the escalating unemployment rate, paint a clear picture of a shifting economic landscape. As job gains remain subdued and the unemployment rate reaches an 18-month high, it is evident that careful monitoring and strategic interventions will be crucial in navigating these challenging times.
Source: Yahoo Finance
