The Labor Market Outperforms Expectations, but Uncertainty Abounds

An in-depth look at the current labor market and insights for what's ahead.

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Mar 22, 2023

I’ve mentioned in previous columns that there would be surprises and disruptions in the year ahead. We were certainly handed a few in the banking industry during the past couple of weeks, but let’s start with a recap of another strong labor market report.

2023 Hiring is Off to a Strong Start

For February, the economy added 311,000 net new jobs based on data from the U.S. Bureau of Labor Statistics (BLS). On a year-to-date basis, the blistering total of 815,000 jobs added in the first two months of 2023 is still well ahead of previous norms, and certainly exceeded economists’ expectations, despite the general sentiment and economic uncertainty.

In the five years before the pandemic, the labor market averaged a total of 439,000 net job gains in the first two months of the year. In other words, twice as many jobs were added as “normal” even though HR and talent acquisition teams are feeling some of the brunt of layoffs.

Moderation in Other Labor Market Metrics

While the overall job growth numbers remain solid, some other metrics are moderating. You will see the word “cooling” in a lot of labor market reports, but remember that things have been at unsustainable levels and some degree of reversion to the norm was expected.

Given the news of layoffs and many companies reducing hiring volumes, the unemployment rate was expected to eventually increase. The figure ticked up slightly to 3.6% in February, but that is still one of the lowest unemployment rates in the last sixty-plus years. While much of the news with layoffs is focused on the tech industry, tech jobs still show an unemployment rate of just 2.2%.

Job Openings Decline As Some Businesses Stall Hiring Plans

According to data from BLS, job openings also declined early this year. Again, that was a trend that was forecasted as some companies would pause or slow their pace of hiring or backfilling. Job openings fell from 11.2 million in December to 10.8 million in January.

Keep in mind there are currently just over 5.9 million people unemployed, up from 5.7 million in January, but down from 6.3 million a year ago. Nearly half of open roles were not being filled because there were simply not nearly enough unemployed workers to take those jobs.

Data from other sources suggest a more pronounced pullback in job openings than what the BLS metrics suggest. A recent Wall Street Journal article referenced stats from ZipRecruiter and Indeed that measured the number of job openings relative to the level before the pandemic started.

As of February, ZipRecruiter’s stats showed there were approximately 16% more jobs open than before the pandemic. While that sounds positive, the number has been steadily dropping. Last February, the job openings level was 48% above the pre-pandemic total. Indeed’s stats did not show quite as steep of a decline with job openings in February still up 40% from pre-pandemic levels, but that was down from 61% a year ago.

Candidates No Longer in the Driver’s Seat, Wage Growth Starting to Slow

With job openings starting to slow, and candidates being a bit less in the driver’s seat today relative to a year ago, the thought was that wage growth would start to ease. That did not happen in February as annual hourly wage growth increased to 4.6%, up slightly from prior month. At least, that is the stat that gets attention.

If you dig in and actually look at month-to-month growth, the 0.2% sequential wage increase in February was the second lowest total in the last 23 months. If it stays in that range, you’ll see the annual wage-growth numbers decline significantly in the next several months and help with some of the inflation fears, which perhaps could also be a factor in any further interest rate increases.

Financial Market Woes Add to Uncertainty

Speaking of inflation, the latest monkey wrench in this equation was the collapse of Silicon Valley Bank, followed by Signature Bank, and then the fear that Credit Suisse was next. Credit Suisse did not fail, but they were purchased at a steep discount by UBS (formerly Union Bank of Switzerland).

The banking industry was incredibly strong in its recovery from the pandemic. The finance and insurance sector gained back all lost jobs before the end of 2020. After such significant interest rate increases in 2022, and now banks either failing or on the brink of it, the Fed’s decision on how to move forward has become more complicated.

2023 Outlook (for Most Sectors) Remains Strong

It is not yet known what the impact will be to the labor market, but LaborIQ is still projecting a significant number of hires for 2023. The latest forecast is that talent acquisition and HR teams will facilitate close to 69 million hires in 2023, up from the previous forecast of 64 million.

The initial recovery of job loss was very uneven in 2020 and 2021, with finance and tech being two of the leaders during that period. Now, hospitality and production roles are picking up some of the slack in the overall numbers, but other industries such as healthcare and education should remain steady this year.

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