'Help wanted' signs went up in August

October 2, 2024

There were eight million job openings in the United States at the end of August, up slightly from the 7.7 million in July. This is a positive sign for the labor market.

The headline numbers for job openings should be taken with a grain of salt, however. Researchers at the Federal Reserve Bank of Minneapolis found that the data are on a long-term upward trend for about fourteen years. After adjusting the data, they found that job openings are lower. This indicates the labor market is looser than the headline may suggest.

Real-time data from Indeed Hiring Lab align with the official JOLTS data. They rose slightly in September and are hovering around 12 to 13% above the pre-pandemic average. This is at the same time that the wage premium for job hoppers in September narrowed to 1.9%, the weakest since January according to the ADP jobs report, and despite an acceleration in private sector hiring.

Increases in job openings month-over-month in August were driven by construction (+138,000); accommodation and food services (+88,000); state and local government excluding education (+78,000); transportation, warehousing and utilities (+77,000); and, professional and business services (+65,000). Job openings grew in both the private and public sectors and across both goods and services industries.

However, many of those gains merely recouped previous months' losses. Construction recovered losses in June and July; it is now back to the level in May. State and local government, excluding education, recovered some losses from July; it is still below June. Openings in transportation, warehousing and utilities remain below June levels. The gains in accommodation and food services and professional and business services did not recover recent losses. The largest monthly losses occurred in other services (-93,000) and financial activities (-52,000).

The ratio of job openings to unemployed job seekers, a measure of balance in the labor market tracked by Federal Reserve officials, remained flat at 1.1. That is still below the pre-pandemic baseline. Adjusting job openings data lower means this ratio is probably even lower.

The hiring rate fell to 3.3% in August from a downwardly revised 3.4% in July. That pace tends to be more consistent with recessions and labor market weakness. Hiring increased by 163,000 in professional and business services, which marks a recovery from two weak months in a row. Most other industries experienced losses.

For now, the lower hiring rate has been less worrisome because layoffs are low by historical standards. The layoff rate was 1.0% in August. It ticked down from 1.1% in July. Professional and business services experienced the highest monthly gain in layoffs. That partially reflects companies reorganizing their workforces in anticipation of Generative AI. The Labor Leverage Ratio, a proxy for worker bargaining power, was basically flat in August despite a flurry of strikes.

Even though layoffs remained low, the hiring rate by itself can lead to the labor market weakness the Federal Reserve is seeking to avoid. If more re-entrants and new entrants are unable to find jobs, the unemployment rate will start to rise. That could happen even in the absence of mass layoffs.

The number of quits slipped to 1.9% in August from 2.2% at the beginning of the year. Except for a few months during the beginning of the pandemic, that was the lowest rate in nine years.

The overall data is mixed. When combined with other real-time data on the labor market, they suggest that hiring has cooled but not collapsed. Wage gains are cooling, along with the premium once paid to job hoppers.