The Usual Headlines Aren’t Telling the True Story About the Labor Market 

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Nov 28, 2022
This article is part of a series called The Labor Market.

The U.S. labor market added 261,000 jobs in October. It was another very solid month of job gains, and it pushed the year-to-date total to almost 4.1 million jobs added. For perspective, the number of jobs added in the first 10 months of 2022 was roughly the same as the total for the 22 months before the pandemic. Those involved in recruiting, hiring, and onboarding have had their work cut out for them this year. 

The unemployment rate increased slightly, but at 3.7%, available talent remains very scarce. Some industries are having an even harder time than others finding workers. Hospitals, government, insurance, utilities, and oil and gas companies are among those with an unemployment rate lower than 2%. 

It can be practically impossible for unemployment rates to go any lower than they already are for those industries, and job gains will ultimately slow if the supply of labor does not increase. 

Keep in mind, those industries include many different occupations, and they could be a landing spot for people in other sectors that are impacted by layoffs or hiring freezes. 

Despite Headlines, Layoffs Remain Near Historic Lows

Speaking of layoffs, several high-profile tech companies have announced layoffs since last month’s column. Meta, Amazon, Salesforce, and Twitter are just a few that have been in the news. Even though the smoke keeps getting thicker with suggestions that layoffs are becoming more widespread, the typical indicators that monitor substantial impacts to unemployment have not shown a lot of movement yet. At the same time, job gains have remained robust, job openings and hires remain very elevated.

Meanwhile, initial unemployment insurance claims are reported weekly. And while there can be a delay when trends start to show in the data, there has been little movement in unemployment claims even though large-scale layoffs have been in the news. 

The latest count declined to 222,000 claims, practically equal to the weekly average in 2019, when unemployment was also historically low. That said, unemployment filings could be delayed based on generous severance packages being offered, which also gives some of those terminated more time to find a new job. 

Inflation Cools…Slightly

Inflation has had a significant impact on businesses and consumers, but there was a ray of hope in the most recent report from the Bureau of Labor Statistics. The producer price index (PPI), which measures the changes in costs businesses incur to produce products, slowed to 8.% year-over-year growth in October. 

Now, that number is still very high, but it is down substantially from the peak of 11.7% in March. 

Given the increase in cost to produce goods, businesses have been faced with either shrinking profit margins or passing along the bulk of those costs to their consumers. How does that matter for those in the recruiting industry? If businesses are not able to increase the price of their products, they must find some way of cutting costs. Reducing or maintaining existing headcount is one option. So, the PPI declining gives more relief to the expense line and potentially leaves more room for hiring. 

While it is good to see both the PPI and the consumer price index (CPI) decline from recent highs, there is still quite a way to go before inflation moderates to an ideal level. In the meantime, the housing market is taking much of the brunt of the impact from rising interest rates.

According to the National Association of Realtors, sales of existing homes have declined for nine consecutive months, the longest negative streak on record. Mortgage rates have averaged above 7% at times in recent weeks, more than double rates from a year ago. While mortgage rates have drifted back to the mid-6% range, the increase since the beginning of this year has caused the housing market to stall for both buyers and sellers. 

Those considering purchasing a home must weigh higher interest rates, the prospect of falling home values, and an uncertain job market in 2023. From a seller’s perspective, unless they have no other option, it is likely best to wait and see how the market changes or risk losing a significant amount of equity they thought they had in the house when the market was incredibly hot the past two years. 

If you are trying to recruit candidates to relocate, this change in market conditions will weigh on candidates’ ability to make a move. Many locations in the southeast, southwest, and mountain west areas of the country have benefited from a growing labor force due to people relocating from other parts of the country. The housing factor will likely play more of a role in the ability to attract talent from other locations for at least the next several months.

Some Industries Thrive During Economic Downturns

It appears jobs in housing and supporting industries — like construction, real estate, and mortgage brokerages — will continue to be impacted in the near term, and there is very likely some degree of a broader slowdown in front of us. However, not all industries experience the same challenges when the economy and labor markets soften. 

In the immediate aftermath of the pandemic, we changed the way we bought and received goods, which ended up being a boon for the warehousing and storage industry. It more than recaptured all jobs lost by June 2020, just a few months after the start of the pandemic. 

During the Great Recession, practically all industries had a prolonged impact, hence the name. Still, the education and health care industries continued adding jobs throughout the Great Recession. (Side note, those two industries tend to be resilient during recessions, but the pandemic had special circumstances where the doors literally had to close for a period of time for many of those establishments.)

Going back in time for one more comparison, finance and government jobs kept growing through the dotcom recession in 2001. 

Outlook for 2023

In all, 2022 will go down as one of the strongest labor markets on record. Let’s appreciate the strong market we have been part of this past year. While things weren’t always easy, different challenges likely lie ahead. 

Even if we get into some degree of job loss territory in 2023 as the market adjusts to inflation-control measures, there will still be industries and sub-industries that thrive. Additionally, recruiting will need to remain strong — particularly given a projection of around 64 million hires for 2023.  

This article is part of a series called The Labor Market.
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