Labor demand steady

November 1, 2023

In September, job openings rose slightly to 9.6 million from 9.5 million the previous month. Following an increase of over half a million job openings, September marked the second consecutive month of growth. High-frequency data from Indeed showed minimal fluctuation between August and September. After cooling in the summer, labor demand held steady as we entered the fall.

Private sectors contributed the gains in job openings. The leisure and hospitality sectors contributed 181,000 new job openings, marking the most significant monthly jump since December 2022. This growth was reflected in September's payroll numbers. Third-quarter headline U.S. economy data indicated that consumer spending on recreational activities and travel remained robust. Other sectors, like financial activities, trade and construction, also showed more job openings. At the same time, we saw declines in professional and business services, and government roles.

Following an impressive gain of 305,000 job openings in August, the professional and business services sector receded, losing half that number in September. Throughout the year, that industry averaged monthly losses of 51,000 jobs, suggesting a cooled demand for workers. Rising interest rates and tightening credit conditions will likely suppress further business investment, leading to fewer job openings.

The ratio of job openings to job seekers remained consistent at 1.5, signifying three job openings for every two unemployed job seekers. This ratio has been steady since June, down from its peak of 2.0 but still higher than the pre-pandemic level of 1.2. Both job openings and unemployment figures remain stable, maintaining the existing tight labor market. However, recent trends, including an increase in labor force participation and a return to pre-pandemic immigration levels, will further ease the current imbalance in the labor market.

Hiring in September remained consistent with August, indicating potential robust job growth in October. Layoffs, meanwhile, decreased slightly in September, correlating with the lower initial unemployment insurance claims. The professional and business services sector saw a decrease in layoffs in September after its resurgence in the previous month.

Neither the writers' or actors' strike, nor the United Auto Workers' (UAW) strike had a significant impact on September's layoffs. However, as the UAW strike intensified in October, potential repercussions in the manufacturing sector are anticipated, once the data becomes available.

The quit rate in September held at 2.3%, representing 3.6 million resignations, or levels reminiscent of 2019. That stability in the third quarter signifies a possible end to the "great resignation" phenomenon. As employees stabilize in their roles, their productivity likely increases.

Separate reports from private data sources highlighted a decrease in wage growth for those switching jobs. In September, wage growth dipped below 9% for the first time since June 2021. Additionally, wages for new job openings have been declining, a trend over the past 18 months that is favorable for the Fed. The reduction in wage pressures aligns with the Fed's target of 2% inflation rate.

Small businesses, those employing fewer than 250 individuals, represented 71% of job openings, 74% of hires, 78% of quits, and 73% of layoffs in September. These figures surpass those of the preceding months, underscoring the resilience and adaptability of small businesses despite challenging financial conditions. Given their reliance on traditional banking, any further credit tightening could disproportionately affect small to mid-sized firms.