Historically Tight Labor Market

Labor demand far outpaced labor supply in 2022.

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George Rao

George Rao

Economist, KPMG Economics, KPMG US

+1 212-954-4962

December’s job openings moved up more than half a million from November to 11 million. For the entire year, job openings per month averaged around 11 million, 54% higher than the average number pre-pandemic.

The ratio of job openings to job seekers moved back up to 1.9 from 1.7 in November.  That ratio was 1.8 for all of 2022, well above the 1.2 average of 2019.

Accommodation and food services saw the largest increase with over 400,000 job postings. The second largest gain was in retail. The largest retailer in the country announced an increase in entry-level wages from $12 to $14 in late January. Retail job openings matched the levels hit a year ago in December, despite a drop in consumer spending at year-end.

The only sector to post a major drop in job openings was information, which includes the technology and media sectors. Both have turned to layoffs as rates rose and advertising revenues dried up after the midterm elections. This is the first real sign of stress in the information sector.  Hires in the information sector also slowed, reflecting hiring freezes.

Total hiring in 2022 hit 76.4 million, the highest level on record. Quits also hit a record of 50.5 million in 2022. The quits rate remained elevated at year-end, with gains in the public sector and other services offsetting a slowdown in transportation, warehousing and utilities. The quits rate in the information sector remained elevated, despite a drop in job openings. Those who could jump ship did so before they were laid off.

Layoffs and discharges hit a record low in 2022. The surge in large company layoffs we have seen in the headlines have yet to show up in the economic data. Those who continue to receive a paycheck for their severance, as opposed to a lump sum, show up as workers on company payrolls. They cannot apply for unemployment until their severance runs out.


Bottom Line:

The labor market was the tightest on record in 2022. There were few signs of an easing of those conditions in December, despite high-profile layoff announcements and some cooling in wage gains. This is one of the primary reasons that the Federal Reserve remains concerned that the recent cooling we have seen in inflation could be “transitory.” Chairman Jay Powell argued in his press conference following the Fed’s meeting that financial conditions will need to tighten further. He still expects an increase in the unemployment rate and is more willing to overshoot than undershoot rate hikes. He reiterated the Fed’s commitment to at least two more rate hikes this year.

Chairman Jay Powell argued in his press conference following the Fed’s meeting that financial conditions will need to tighten further.
Business investment is poised to contract in the overall GDP data in the second quarter.