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Cooling but resilient labor market

Job openings hit their lowest level in two years.

In May, the total number of job openings decreased to 9.8 million, a drop of half a million from the 10.3 million recorded in April. This shift was noticeable across various sectors, with health care and social assistance, finance and insurance, and other services bearing the brunt of the decline.

Retail trade, a sector that had previously seen a surge in job openings, also experienced a downturn in May. This came alongside a significant increase in total separations for the month, primarily fueled by a rise in layoffs. A slowdown in retail sales, notably the pivot from goods into services, is starting to show up in the labor market data.

In both the health care and the leisure and hospitality sectors, job openings decreased while voluntary resignations increased. That increase in quits suggests that workers remain optimistic about their job prospects in those industries, despite the drop in job openings. That is a sign of the ongoing labor market strength.  

Conversely, there was a noticeable upswing in job openings across federal, state and local government education sectors, as they attempted to catch up on a shortfall in hiring post pandemic. The public sector has lagged the private sector in ramping up, often unable to compete with the wage gains in the private sector. A slowdown in overall wage growth and increases in the public sector are helping to narrow the gap. The push to staff up in the public sector hiring was reflected in the June payroll report as well.

The construction industry emerged as another bright spot with an uptick in job openings, hires and quits. Everything from a pickup on public infrastructure spending and subsidies for chip and electric vehicle (EV) plants to a resurgence in single family home building is fueling construction employment and the demand for construction workers. An influx of immigration is also important, as more construction workers tend to be immigrants.

The ratio of job openings to job seekers has declined to 1.6 from 1.8. The shift was both in the numerator and the denominator; job openings fell, while the ranks of the unemployed moved up in May. The ratio is still well above the 1.2 jobs openings per job seeker in February 2020 and the 1:1 ratio the Federal Reserve would prefer to fully defeat inflation.

Total hiring remained static in May. Gains in retail trade, manufacturing, and health care and social assistance were offset by declines in professional and business services, information and real estate. The hiring trend underlines the resilience of the labor market even as economic conditions start to show signs of cooling.

The total layoffs trended downward in May with professional and business services, construction and other services registering fewer layoffs during the month.

The total quits rate climbed to 2.6% in May, recording 4 million quits — the steepest monthly increase since November 2021. This increase was broad-based with only a few exceptions. Given that those who change jobs often benefit from wage increase premiums, such quits rates could potentially sustain high inflation levels. The premium of job hopping has narrowed in recent months but remains extremely lucrative for job hoppers relative to job seekers. The ADP report on payrolls revealed that job hoppers were still getting double-digit wage gains, while job stayers saw wage gains in the mid-single digits.

Small businesses, with fewer than 250 employees, represented 68% of job openings, 75% of hires, 79% of quits, and 71% of layoffs in May. That is off from their peak 71% share of new job openings at the start of the year and should be watched given the reliance of smaller business on bank lending. Credit conditions have tightened the most in the banking sector.


The demand for workers remains strong relative to the pre-pandemic era, which showed up in a jump in hire and quit rates; layoffs also abated during the month.

Bottom Line:

Job openings hit their lowest level since May 2021, a 14% decrease from a year ago. More recent data from private job posting websites suggest that job demand continued to cool in June. However, the demand for workers remains strong relative to the pre-pandemic era, which showed up in a jump in hire and quit rates; layoffs also abated during the month. Those shifts coupled with the persistence of service sector inflation are expected to push the Fed to raise rates again later this month and will likely keep them raising rates in September.

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Meet our team

Image of George Rao
George Rao
Economist, KPMG Economics, KPMG US

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