Labor Market Remains Tight
Quits high despite technology layoffs.
Job openings numbers decreased in nine states in October. Texas (-76,000), Virginia (-64,000) and New York (-62,000) led the drop. Other states with larger populations reported job increases, such as Florida (85,000), Illinois (37,000) and Wisconsin (35,000). Nationally, the number of job openings remained elevated.
The national job openings rate stayed at the same level of 6.4%, with eight states showing decreases and seven states posting higher rates. Many states in the East, such as Virginia, New Jersey and New York reported lower job openings rates from October to November.
On the national level, the ratio of job openings to job seekers stayed elevated at 1.7 in November. That means for every unemployed person, there were close to two jobs available. The District of Columbia and 34 states had a ratio greater than or equal to the national level. All 50 states and the District of Columbia had more job openings than job seekers. The tight labor market showed little sign of easing.
The hires rates increased in four states: Maine, Iowa, North Dakota and Texas. Hires rates dropped in three states: Alabama, Louisiana and Massachusetts. Total numbers of hires increased in three states and dropped in three states. Texas saw the largest increase, with 57,000 more hired while Alabama counted 20k fewer hires, the largest drop among all states.
Total layoffs and discharges went down in November. That implies that labor hoarding was still common among businesses. Large layoffs in the technology and information sector still did not translate to higher layoffs in those states. With such a tight labor market, those who were laid off in the technology sector easily found new jobs.
Quits levels ticked up in November to 2.7% on the national level. Five states, which included Washington and California, saw quits rates increases. North Carolina was the only state where lower quits occurred. Elevated quits made that market tighter as new employment opportunities presented themselves. Higher quits, in turn, led to higher job openings and hires as businesses needed to find new talent when their previous employees left. This employment reshuffling will likely continue for some time before the economy slows significantly.
We expect the labor market to cool down in 2023. A few leading indicators, such as the Manufacturing and the Service Purchasing Managers indices from the Institute of Supply Management slipped into contraction territory in the last quarter of 2022. The Federal Reserve is attempting to slow the demand for workers via higher interest rate hikes and the crimp that places on overall demand in the economy; the Fed’s base case also includes an increase in the supply of workers via higher unemployment.
The Bottom Line:
The labor market indicators showed few signs of slowing between October and November. Large layoffs announced in the technology sector did not shake the fundamental supply-demand structure of the labor market. An elevated level of job openings and quit rates represent a challenge to the Fed as they are indicators that rate hikes have yet to align labor demand with labor supply. The Fed’s baseline includes three additional quarter point hikes. The goal is to slow demand and raise supply via a modest rise in unemployment in 2023. The natural or noninflationary rate of unemployment may now be higher than it was before the onset of the pandemic. The Fed had hoped it could return to a 3.5% unemployment rate without triggering inflation. That was not the case.