Labor demand showed signs of cooling in February

The job openings rate fell to 6.0% in February on a monthly basis to 9.9 million. The data for January were revised down from 10.8 to 10.6 million, but still above the levels high frequency data on openings from the job posting sites suggest.

The ratio of job openings to job seekers slipped to 1.7 from 1.9 in January, which still indicates a tight labor market based on historical standards. There were still plenty of job opportunities available for unemployed job seekers.

Many industries posted job opening decreases, particularly professional and business services, which had 278,000 fewer openings than the previous month, equivalent to a 13% drop and 19.2% below the same time last year. The transportation, warehousing, and utilities sectors also experienced a significant decrease, with job openings down by 23% from January. Large national online retailers closing their warehousing facilities in February led to plummeting demand for workers. Other industries such as health care (-150,000), accommodation and food services (-125,000) and retail trade (-72,000) posted losses in job openings.

On the other hand, the construction sector reported a 46% increase from January on higher residential construction thanks to lower mortgage rates and warm weather, in addition to higher construction spending on manufacturing structures. The information sector showed a 6.5% increase in job openings in February, demonstrating resilience despite large layoffs at big companies.

Total hires moved down to 6.2 million in February. The hiring speed slowed in service sectors, such as retail trade, professional and business services, transportation, warehousing, and utilities and accommodation and food services.

Total layoffs decreased by 215,000, with professional and business services experiencing smaller layoffs in February. Total quits increased by 146,000. Professional and business services experienced a 21% jump in quits. The slowdown in job demand did not translate to lower job churn in the sector in February. Higher turnover usually leads to higher wage increases in the sector, as those who switch jobs can usually get higher pay increases. The high quits level in professional and business services could add labor cost pressures to firms. This is corroborated by KPMG Economics Insights on Inflation survey results, as businesses in this sector expect labor costs to be 6%, a full percentage point higher than other industries over the next 12 months.

Small businesses, those with less than 250 employees, play an important role in the labor market, accounting for over 71% of job openings, 76% of hires and 78% of quits in February, all at historically high levels. The health of small businesses will be an important barometer to measure the labor market in the months to come as their borrowing costs will keep rising due to higher interest rates.