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A goldilocks JOLTS report in June

This JOLTS report ticked all the Fed’s boxes.

August 1, 2023

The total number of job openings declined to 9.6 million in June, a marginal drop of 34,000 from May and well above the level suggested by the online job posting sites. Job openings in manufacturing, retail trade and transportation continued to cool due to easing supply chain pressures and a shift in consumer spending towards services. The accommodation and food services sector cooled as well but remained well above pre-pandemic levels. Spending at full-service restaurants has cooled more rapidly than spending at fast-food restaurants.

We have also seen a slowdown in churn in the overall labor market. The number of workers out sick and unable to work dropped down to pre-pandemic levels in May and June. That means fewer staff shortages for frontline jobs.

However, several industries experienced increases in job openings in June. Gains in both healthcare and other services echoed the strong demand for personal services in an aging demographic. State and local governments also reported increased job openings as they attempted to compensate in this post-pandemic labor shortfall.

The public sector has been slower to recover compared to the private sector, often unable to match private sector wage increases. However, a slowdown in overall wage growth, paired with wage increases in the public sector, is helping to narrow this gap.

The drive to increase staff in public sector hiring was reflected in June's payroll report. In June, total hires dropped to 5.9 million, the lowest since March 2021 and consistent with 2019 levels. The hiring slowdown was pervasive across all major sectors. With total unemployment decreasing in June, the ratio of job openings to job seekers remained at 1.6. That ratio is still significantly above the 1.2 job openings per job seeker seen in February 2020 and the 1:1 ratio preferred by the Federal Reserve to defeat inflation. If unemployment rises later this year, the ratios will shift.

Layoffs decreased in June, a trend seen broadly across sectors. The noticeable outlier was the professional and business services sector, which saw a significant increase of 36% from May. Some businesses in this sector, including technology companies, are restructuring their workforces in response to tighter credit conditions.

The total quit rate decreased to 2.6% in June, with 3.8 million quits. It returned to the level seen in April following a spike in May. Retail trade, finance and insurance, healthcare and other services all experienced lower quit levels. That decrease is a positive sign for the Federal Reserve, as lower quit rates could ease the wage pressures employers are facing, potentially leading to slower price increases for consumers.

Further evidence of slowing wage increases was presented in a separate report by payroll processing company ADP, which indicated that the wage increase associated with job-hopping had narrowed in June. If that downward trend continues, job switchers are likely to see wage gains of less than double digits later this year, further reducing wage-related inflationary pressure.

Small businesses, employing fewer than 250 people, accounted for 69% of job openings, 75% of hires, 77% of quits and 72% of layoffs in June. The statistics are consistent with those from May, suggesting that small businesses continue to show resilience in the face of tighter credit conditions. Small business job openings peaked 70.9% in January. A further tightening of credit conditions in the banking sector in the second quarter is expected to hit small and midsized firms, which rely more on traditional banks for their funding.

With job creation and wage increases slowing, the labor market is cooling off in this hot summer.

Bottom Line

The June JOLTS report fulfilled all of the Federal Reserve's expectations. Job openings, hires and quits all declined to the lowest levels in two years. With job creation and wage increases slowing, the labor market is cooling off in this hot summer. Recent data on job postings and payrolls indicate that wage growth is significantly slower than a year ago. The softening labor market could persuade the Federal Reserve that current interest rates are restrictive enough to meet policy targets.

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