End of The Great Resignation?

August 29, 2023

In July, the total number of job openings declined to 8.8 million, marking a 4% drop from the revised figure in June. Job openings fell in both the private and public sectors. Specifically, professional and business services, health care and social assistance, and other services have reported a slowing demand for labor over recent months. July's numbers for professional and business services hit their lowest point since November 2020, aligning with levels seen in 2019. That suggests that the demand for workers in this sector has returned to pre-pandemic conditions.

Over the past year and a half, rising interest rates have curtailed business investment in the services sector. As borrowing and refinancing costs increase, businesses tend to reduce expenditures on new projects, resulting in fewer job openings. Nonetheless, factors like rising interest rates might not be influencing the labor demand much in areas like health care and social assistance, where the need for personal services and care workers remains robust due to an aging demographic.

In the public sector, labor demand receded. After a brief surge in early summer, both federal, state and local governments reduced their job postings. The month-to-month decrease may hint at a more cautious hiring approach by governments. However, considering that employment in state and local education is still below its pre-pandemic level, it's possible that demand for labor in certain sectors might exceed supply for some time.

In July, the ratio of job openings to job seekers decreased slightly to 1.5. That suggests that for every two unemployed job seekers, three job openings were available. Though still higher than the pre-pandemic ratio of 1.2, it carries on the declining trend. A potential rise in unemployment later this year could cause the ratio to dip to a more balanced 1:1, which the Federal Reserve views favorably.

July also saw a deceleration in total hires with 167,000 fewer than the preceding month. That change in the hiring rate, now at 3.7%, could hint at weaker job growth for August. However, layoffs remained unchanged in July, aligning with the muted initial unemployment insurance claims reported by the Department of Labor. Specifically, after a noticeable uptick in June, layoffs in the professional and business services sector dropped by 14% in July. That shows firms are taking a more measured approach to workforce adjustments.

The total quits rate had fallen to 2.3%, amounting to 3.5 million quits. That mirrors levels seen before the pandemic in 2019. The decrease in the quit rate, notably prevalent in the services sector, is good news for the Federal Reserve. Fewer quits can alleviate the wage pressures employers experience, potentially leading to more moderate price increases for consumers.

Reports from both the Atlanta wage track and ADP indicate that wage increases linked with job-hopping are diminishing. Additionally, job posting websites reveal that wages for newly posted positions are decelerating. These factors could further alleviate wage-induced inflationary pressures.

In July, small businesses employing fewer than 250 people accounted for 69% of job openings, 75% of hires, 77% of quits and 74% of layoffs. These figures remain consistent with data from June and May, highlighting the resilience of small businesses despite stricter credit conditions. Given that small businesses typically depend on traditional banking for funding, potential disruptions in the credit pipeline could especially impact small and midsize firms.