In recent times, the employment market in the United States has mostly remained hot since the outbreak of the pandemic. However, the latest labor force data and some other signs are beginning to indicate a reversal of the situation. The once hot job market is now becoming lukewarm for job seekers.
According to a report by CNN on July 8th, for nearly four years, job seekers in the United States have been dominating the labor market as employers need to fill millions of job vacancies to meet the high demand for personnel in the post-pandemic period. Many employers are even hesitant to ask their employees to return to the office for fear that they might resign. If these employees eventually leave the company, they may quickly find another job that suits them. Moreover, these employees are also likely to switch jobs in order to secure higher salaries.
In June, the unemployment rate rose to its highest level in three years at 4.1%, with 6.8 million people unemployed. A year ago, the unemployment rate was 3.6%, with 6 million people unemployed.
The increase in the unemployment rate is mainly due to more people entering the labor market, which means competition among job seekers is becoming more intense. This is just one of several signs of changes in the labor market.
“We’ve gone from ‘the job market remains at a certain high level’ to ‘hoping it won’t freefall’,” Luke Pardue, policy director of the Aspen Institute’s Economic Strategy Group, told CNN.
Economists have been closely monitoring the rate at which employees are quitting their jobs as it is a signal of whether employees are willing to test the labor market. After the resignation rate reached 3% during the pandemic, it has now stabilized at 2.2% for seven consecutive months. When people switch jobs, it is usually related to salary growth, which in turn could make it harder to curb inflation.
According to recent analysis by Bank of America, the salary increase for job switchers has significantly decreased compared to the period known as the “Great Resignation”. David Tinsley, a senior economist at the Bank of America Research Institute, told CNN that in fact, the median wage increase is slightly lower than the 2019 level, indicating that the labor market has tilted slightly in favor of businesses.
As the pace of recruitment slows down, people are experiencing longer periods of unemployment. Data from the US Bureau of Labor Statistics shows that the median duration of unemployment increased from 8.9 weeks in May to 9.8 weeks last month, reaching the highest level since January 2023, in line with the latest trends in unemployment insurance claims data from the Department of Labor.
According to data released by the Department of Labor last week, as of June 22nd, the number of people continuing to apply for unemployment benefits, meaning those who have been receiving benefits for at least one week or longer, has risen to 1.858 million, reaching the highest level since November 2021.
The number of initial claims for unemployment benefits, which is considered an indicator of layoffs by companies, is also steadily increasing. For the week ending June 29th, the four-week average of initial claims for unemployment benefits was 238,500, the highest level since August 2023.
Although the duration of unemployment and the unemployment rate have both increased recently, it is important to consider the historical context: the median duration of unemployment is the same as in 2019, and the unemployment rate is still below the historical average.
Despite the addition of 206,000 jobs last month, not all industries saw an increase in employment. In fact, in some industries, the number of layoffs exceeded the number of new hires.
One-third of the new jobs added in June came from the US government sector, while recruitment activities in the private sector lagged behind, which is not a positive sign.
In the retail and manufacturing industries, total employment decreased by 9,000 and 8,000, respectively. The industry with the highest number of layoffs is the business services industry, which includes accountants and marketing professionals. Compared to May, employment in this industry decreased by 17,000 last month, with a significant drop of 49,000 in temporary services personnel, which is a branch of the business services industry.
Temporary labor categories are closely watched by economists as they can serve as a leading economic indicator, while other indicators tend to have lagging effects: if companies are expanding, they usually use temporary workers until they can hire full-time employees, but if the situation is unfavorable, temporary workers are often the first to be laid off.
Since 2022, the temporary industry has only added jobs in April, with decreases in all other months, and the drop in June was the largest since April 2021.
Jack McIntyre, a portfolio manager at Brandywine Global, wrote in a comment released last Friday that the sharp decline in the number of temporary workers may indicate a softening labor market ahead this summer.