Lower labor demand as expected

December 15, 2023

Job openings decreased by 617,000 to 8.7 million in October, reversing the upward trend observed in the previous two months. This decline was largely anticipated based on high-frequency data sources. October’s total job openings number hit the lowest level since March 2021.

A total of 41 states, along with the District of Columbia, experienced decreases in job openings. The most significant declines appeared in Tennessee, California and Illinois, which together accounted for 31% of the total reduction in job openings.

Following a recent surge, Tennessee's job openings fell below its August level. Additionally, the state's unemployment rate has risen from its historic low in the summer months, indicating a relaxation in the previously tight labor market.

The ratio of job openings to unemployed job seekers fell to 1.3 in October, the lowest in more than two years. In total, 40 states, including the District of Columbia, recorded ratios at or above the national average. North Dakota and Maryland posted ratios of three or higher, suggesting there were more than three job openings for every unemployed job seeker. In contrast, California and New Jersey reported some of the nation's lowest ratios at 0.9, indicating fewer than one job available per unemployed individual. October marked the beginning of some states experiencing a cooldown in labor demand. Further declines in job openings to unemployed job seekers ratios are expected in the coming months.

While hiring has started to cool, the pace remains uneven across the country. Hiring slowed in October, with Kentucky, Louisiana and Alabama seeing declines in hire rates. However, Texas reported an increase of 86,000 new hires, recovering from a dip in September. The labor market dynamics in the Sun Belt states, which have seen significant population and business growth in recent years, will be a bellwether for national trends.

Layoffs increased by 32,000 in October, with northeastern states like New Jersey, Pennsylvania and Massachusetts experiencing the largest increases. Conversely, Midwestern states such as Minnesota, Missouri and Kansas reported lower levels of layoffs. The United Auto Workers’ (UAW) strike in October did not significantly impact layoff numbers in the Midwest. As the strike concluded in November, its impact on national layoff figures is expected to be limited.

The total number of quits in October remained roughly unchanged. While regional differences persist, most states have reverted to their 2019 quits levels. This decline has continued to narrow the wage premium for job hoppers. Both public and private data indicate a significant decrease in the wage premium for those changing jobs. Furthermore, wages for new job postings are on a downward trend. This trend affects both experienced and new workers, with lower percentages of wage increases. The Federal Reserve views this deceleration in wage growth positively. As inflation cools, steady wage growth will benefit workers, with their earnings outpacing price levels. This situation contrasts with 2021 and 2022, when rising wages were eroded by inflation.