Signs of weakness in the labor market

September 4, 2024

There were 7.7 million job openings in the United States according to the July US Job Openings and Labor Turnover Survey (JOLTS) report. That is down from a high of 12.2 million in March 2022 and the lowest number since January 2021. That reflects broad cooling in the labor market. Additional declines in openings would suggest the cooling is changing to a weakening. This is the main worry of the Federal Reserve.

Real-time data from Indeed Hiring Lab show that job postings have basically plateaued since late May. They are roughly 12% above the pre-pandemic benchmark. That is good news. It shows that labor demand has not fallen off a cliff. Fed officials will be watching closely if these postings start to trend downward.

Job openings declined month-over-month in trade, transportation and utilities (-157,000) and construction (-51,000). They show the bite of higher interest rates on both demand and supply. Rate cuts should help buoy them in 2025. Openings dropped by 187,000 in healthcare and social assistance, but they are still well above the pre-pandemic average.

The squeeze on state and local government budgets as many states enter the new fiscal year 2025 is evident; openings declined by 101,000 in state and local government, excluding education in July. That has been one of the three main sectors contributing to job gains since mid-2023. Additional declines in openings could mute those gains.

Professional and business services added 178,000 job openings in July. Total openings are now basically back to where they were in May after a weak June reading. Openings remain above the pre-pandemic average, as companies retool their workforces especially around GenAI.

The ratio of job openings to unemployed job seekers, a measure of balance in the labor market and tracked closely by Federal Reserve officials, dropped to 1.1 in July. That is below the pre-pandemic baseline of 1.2. The ratio was 1.4 in January 2024. It is a worrisome signal for the Fed.

The hiring rate was 3.5% in July. It ticked up from a downwardly revised 3.3% rate in June. In the 2000s and 2010s, the hiring rate coincided with an unemployment rate that is one to two percentage points higher. These data confirm what so many job seekers are feeling; it is difficult to get hired today.

Hires dropped by 19,000 in state and local government excluding education in July. They are now at the lowest level in three years. Most of the gains in hires in July occurred in leisure and hospitality (+160,000). That was a recovery from a sharp drop in June. Hires are roughly back to where they were in May. The story is similar for construction where gains of 48,000 in July offset losses of 46,000 in June.

We should be careful interpreting too much from one month's worth of data. This is especially true given the low response rate of the JOLTS survey; it has dropped from around 67% in 2014 to 33% in 2024, so the data to work with are much more limited.

Total quits changed little in July as the quits rate ticked up to 2.1% compared to 2.0% in June. This rate is still below the pre-pandemic average of 2.3% and reflects worker pessimism about the labor market. Data from ADP show that the wage premium for switching jobs dropped by half a percentage point month-over-month to 7.2% in July. That is the lowest reading since May 2021 and reinforces the reduced incentive for changing jobs.

The layoffs rate was 1.1% in July. That is still low by historical standards, but it did tick up from 1.0% in June. The rate has moved up and down in some months by only a tenth of a percentage point in the past two years, but any trend upwards would be a warning sign of recession. The Labor Leverage Ratio, a proxy for worker bargaining power, ticked down in July, additional evidence of weakening in the labor market.