The first Friday morning of each month, we wait anxiously for the latest labor market report from the U.S. Bureau of Labor Statistics. We have a rough draft of our analysis based on our forecast, and hope our projections are in line with the results so we can post the report quickly. This month’s version, though, required a major rewrite, but it was for a very positive reason.
The U.S. added a shocking total of 528,000 jobs in July. Despite months of headlines related to an imminent recession, inflation at levels most of our population has never experienced, and the anticipation that the extremely hot job market was about to cool, the labor market posted its best month of job gains since February.
Hiring was widespread with every major industry adding jobs. People have been traveling more this summer, and so the leisure and hospitality sector added 96,000 jobs in July. Meanwhile, the cost of goods has surged due to inflation, which is supposed to limit consumers’ ability to purchase at the same volume, but the retail industry added 22,000 jobs. What’s more, the average rate on a 30-year mortgage has almost doubled from 2.65% in the first week of January 2021 to 5.22% in mid-August. And the construction industry, partially driven by residential construction, added 32,000 jobs.
Highlighting more good news, the U.S. has now recovered all jobs lost from the pandemic. No, it has not recaptured all the jobs that would have been added if the pandemic never happened, but the pace at which 22 million jobs were added back to the economy is mind-blowing.
It can be easy to forget how deep the hole was in the labor market just a couple years ago. LaborIQ’s forecast produced in October 2020 predicted the U.S. would recover all jobs by Spring 2023 — while some economists thought it would take much longer before the 22 million lost jobs were refilled.
Still, not all locations and types of jobs have recovered to their previous levels, but the U.S. labor market rebounded much faster than the consensus expectations in the early days of the pandemic.
Where Will Things Trend the Rest of This Year?
A couple months ago, this column laid out a scenario that would lead to a more normalized job-growth rate, and it would likely begin to occur during the second half of this year. While the most recent trends have been very positive, there are some slight signals that more modest growth could be around the corner.
We believed one of the first signs of a potential slowdown would be a decline in the number of job openings. While the current total of 10.7 million open jobs is still very high compared to historic levels, the number has dropped by almost 10% in the last few months. As such, we expect continued moderation in the number of job openings, given the number of companies on hiring freezes or starting to implement layoffs for the first time in a couple years.
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A limiting factor is the shrinking labor force. The number of people who either have a job or are actively looking for a job has declined by 449,000 since March. During the same period, close to 2 million jobs were added, putting a squeeze on available talent. While the national unemployment rate matched the 50-year low of 3.5%, the rate is 1.7% or lower for management, architecture, engineering, technology, and legal jobs.
Due to lack of available workers, combined with 10.7 million open jobs, the pressure on wages remains elevated. Additionally, consumers continue to face the rising prices of goods and services. At times, they are pushed into the job market — or a second job — to find a salary that will help them keep up with their living expenses.
The financial markets cheered that the consumer price index was only 8.5% on an annual basis for July. While it was down from 9.1% from the prior month, it remains well above typical merit increases. That translates to negative growth for real wages because the price of goods is increasing at a faster rate than pay.
Looking ahead, we will be watching for whether the pace of job gains remains elevated, or if the inevitable slowdown begins to occur. Conference season is just around the corner, and I am thrilled that in-person conferences are getting back to the previous norms with more people in attendance. [Editor’s plug: The ERE Recruiting Conference is happening in Atlanta, Nov 7-9.) From a labor market perspective, it should add a level of demand for hospitality jobs that simply wasn’t there the past two years due to the pandemic.
Because of the length in planning those events, combined with the unpredictability related to Covid, production work for major conferences was expected to be one of the last occupations to recover. Yet conferences being back in full force says a lot about where the labor market is 29 months after the pandemic began.