Labor Market Update in Five Pictures

The strength of the labor market has perplexed investors, economists, and the Fed over the past year as unemployment remained at record lows and job openings at record highs despite an aggressive Fed tightening cycle. Though the labor market remains tight, employment data has begun to soften at the margins as pandemic distortions fade and labor demand and supply return to more normalized levels. The rebalancing of the labor market should help ease wage pressures and, in turn, temper core services inflation. In a recent speech, Fed Chair Powell highlighted that “core services other than housing may be the most important category for understanding the future evolution of core inflation.” Because wages make up the largest cost in core services excluding housing, the labor market holds the key to understanding inflation in this category and will drive the Fed outlook as well.

In this regard, we are providing a brief update on what we are seeing in the latest employment data. While current labor market data is strong and wage pressures are elevated, evidence is emerging that these pressures are easing, and further moderation lies ahead. Headlines in financial media on this topic are mixed in that some overstate labor market strength and some understate it. Our goal in this Investment Insights is to provide clarity on the dynamics in the space by highlighting key findings pertaining to the labor market in the five pictures that follow.

Layoffs and Pandemic Hiring

Key Takeaway: Despite layoff announcements recently highlighted in news headlines, the number of workers receiving pink slips  is dwarfed by the number of employees hired over the past few years. Some companies that saw pandemic-fueled growth are now preparing for a slower growth environment.

Initial Jobless Claims and Unemployment Rate

Key Takeaway: Although layoff announcements are rising, initial jobless claims and unemployment remain low.

U.S. Participation Rate and Missing Workers by Post-COVID Cohort

Key Takeaway: While labor force participation has improved recently, it remains below pre-pandemic levels as early retirees, aging demographics, and health and childcare challenges affect labor supply availability.

Number of Job Openings per Unemployed Person and Quits Rate

Key Takeaway: The labor market remains historically tight with nearly two job openings per each unemployed person and the quits rate elevated, though it has loosened at the margin from peak levels seen early last year. An increasingly challenging economic environment has likely caused some companies to reduce job openings.

Atlanta Fed Wage Growth Tracker

Key Takeaway: Wage growth remains elevated but has declined given labor market loosening and less pressure on cost-of-living adjustments as inflation moderates.