Today’s jobs report shows that the labor market is cooling, but only very, very gradually.
The job market remains historically tight. Job gains remain about 60% larger and substantially more broadly distributed across industries than before the pandemic. The pace of gains is only very gradually edging back to normal.
Job gains in leisure and hospitality slowed to just 35k in October, down from an average monthly gain of 196k per month in 2021 on average. That sector is still short 1.1 million employees.
Very few industries shed jobs, and most of the losses were small. The exception was warehousing and storage, which registered a loss of 20k jobs due to seasonal adjustment factors, but actually gained almost 10k jobs on an unadjusted basis.
The labor market remains historically tight due to depressed labor force participation, but wage growth appears to be cooling nonetheless amid economic uncertainty.
Despite the reopening of the economy, and despite the financial pressure many households are facing due to inflation, labor force participation remains sluggish. The labor force participation rate edged downwards to 62.2% in October, down from 63.4% before the pandemic.
The result is an extremely tight labor market, in which employers still say their main challenges are a shortage of qualified candidates, and fierce competition for talent. Businesses face considerable pressure to raise wages and expand benefits. Nonetheless, today’s jobs report suggests wage growth is cooling somewhat, and that employers are starting to find it a bit easier to recruit and retain workers. Year-over-year growth in hourly earnings fell to 4.7% in October from a peak of 5.6% in March. This is the first time wage growth has been below 5% all year.
Despite continued job market resilience, job seekers and employers are both worried that they may be in for a bumpy ride, and they’re buckling up their seatbelts. ZipRecruiter’s monthly Job Seeker Confidence survey shows that job seekers have become less likely in recent months to quit a job without another lined up, and less likely to ask for higher pay when negotiating their job offers. The deterioration in job seeker sentiment appears to be reducing upward pressure on wages.
The number-one factor that will influence the employment situation going forward is the demand picture.
Businesses keep hiring because U.S. consumer demand for most goods and services remains strong. The major exception is real estate and related services, where activity has slowed substantially amid rapidly rising interest rates. The technology sector is also seeing a flood of layoffs and hiring freezes, linked to deteriorating financial conditions and a strong U.S. dollar hurting sales abroad. But weakness in Silicon Valley and on Wall Street is still being more than offset by strength on Main Street.
How long will broad strength in consumer demand continue? It is hard to know. Americans are drawing down the savings they built up during the pandemic and racking up credit card debt. So the current rate of spending growth is not sustainable forever, amid high inflation and mounting borrowing costs. But it could continue for about another year—longer, if inflation cools before workers run out of savings or hit their credit limits, and start seeing increases in their real earnings again.