In last month’s column, I detailed how the labor market could be impacted in the second half of this year based on factors such as inflation, interest rate increases, and expectations of an economic slowdown. Recently released figures suggest those potential disruptors have had very little impact to the labor market — at least so far.
The U.S. added a very respectable 372,00 jobs in June 2022, bringing the year-to-date total to more than 2.7 million jobs added at the midpoint of 2022. For perspective, the comparable benchmark at the midpoint from 2015 to 2019 was 1.2 million jobs added.
In other words, the hiring market remains extraordinarily strong compared to the past norms.
From a national perspective, the labor market is now only 524,000 jobs below the pre-pandemic level, which it could reach by the end of summer if it maintains something close to the recent pace. While many locations and industries have already achieved that status, it is a significant benchmark given how deep the job cuts were at the beginning of the pandemic.
Now, I completely understand and agree with the people saying that we really haven’t been adding jobs, but rather replacing ones lost. That is the case following every recession. It is worth noting and applauding that we could end up recapturing the 22 million jobs lost to the pandemic within 28 months of the initial impact. For the most recent comparison, after the job market hit bottom during the Great Recession, it took 52 months to recover the 8.6 million jobs lost during the period.
The reports for job openings, hires, and quits lag other indicators by a month. The latest reports, which reference May 2022, still showed 11.3 million job openings, 6.5 million hires, and 4.3 million voluntary quits within the month. Consumer and business sentiment has changed considerably since then, but the latest readings for the underlying labor force movement did not show a major dip. Which is to say that the outlook provided in last month’s commentary has not come to fruition so far.
That said, inflation continues to weigh on the economy, and the expectation is it will have an impact on hiring at some point. There was hope that inflation had peaked and was starting to decline, but the consumer price index increased from 8.6% in May to 9.1% in June, the highest rate in more than 40 years.
While wages have also been increasing at a faster rate than normal, I’m guessing most people reading this column did not get a 9.1% raise in the past year. As detailed in last month’s column, people will not be able to purchase the same volume of goods, which will ultimately hit the bottom line of businesses, causing them to at least slow on hiring velocity.
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Either way, simple math says that the pace of hiring will have to moderate by some degree. The labor market has yet to see a flood of workers enter the job market to boost the pool of talent. The unemployment rate was 3.6% in June, but there are areas in the U.S. where talent is critically undersupplied.
As an example, Minneapolis has an overall unemployment rate of just 1.6%. San Jose, CA, which has the highest average level of pay in the U.S., has an unemployment rate of 1.9%. Jobs that have remained in high demand and have remote-work potential are likely even lower than that rate.
Despite uncertainty on the horizon and obvious signs of strain in the economy, the labor market is strong and the competition for talent remains fierce. And while consumers have grown less confident, spending is up, albeit with dollars that don’t stretch quite as far as they did a year ago. There is demand in the market that may keep layoffs — at least on the scale of what we witnessed during the Great Recession — at bay.
Are the labor market and overall economy diverging? We’ll be watching the numbers over the next few months to find out.