Data released on Tuesday revealed that the number of job openings decreased to 9.59 million in March, the lowest level since April 2021. Analysts at Wells Fargo noted that, while the figure is still high, it is an indication that supply and demand in the labor market are beginning to balance out. The quit rate edged lower, and the layoffs and discharges rate ticked higher, trends that are consistent with a gradually cooling labor market. In an absolute sense, the labor market remains tight, with openings and quits still above pre-pandemic levels, and involuntary separations just getting back to what prevailed in 2018-2019. However, a clear trend is emerging, and Wells Fargo expects labor demand to keep receding in the coming months.
The Job Openings and Labor Turnover Survey (JOLTS) for March provided additional evidence that the supply and demand in the labor market are coming into better balance. As the unemployment rate drops and more people find work, the number of job openings is naturally going to decrease, leading to less pressure on employers to fill positions. With job growth expected to slow down in the coming months, it seems the labor market is gradually adjusting to a new normal. This decrease in labor demand is a positive sign that the COVID-19 shock to the job market is subsiding, and the economy is beginning to stabilize.
While there are fewer job openings than before, the quit rate has also edged lower. This suggests that workers are finding jobs more easily, and fewer people are quitting their jobs in search of better opportunities. This decrease in turnover reflects increased job stability and job security, which are both essential for a healthy labor market. A lower quit rate also indicates that workers are more satisfied with their current employment situation and are less likely to change jobs quickly.
On the other hand, the layoffs and discharges rate ticked higher, reflecting some of the labor market cooling. While this may raise concerns about increased job losses, it could also signify that employers are feeling less pressure to retain workers in positions that may not be the best fit. For employees who have been laid off, the increased number of job openings means they may have better chances of finding new employment. The fact that involuntary separations are also getting back to the levels seen in 2018-2019 suggests that the labor market is rebounding from the pandemic-induced downturn.
A stable labor market is vital for maintaining the overall health of the economy. If job growth slows too quickly or demand for labor continues to decline, the economy could face a prolonged period of stagnation. However, the gradual cooling of the labor market may be a sign that the labor supply is beginning to match demand more closely, leading to better opportunities for both job-seekers and employers.
This ongoing trend in the labor market may provide relief to employers that have been struggling to fill open positions throughout the pandemic. With more job openings and a slightly lower quit rate, companies should be better positioned to find qualified candidates more easily. Additionally, the cooling labor market should also provide some relief to workers; with a better balance of supply and demand, workers may not feel as much pressure to take any available job or stay in a less-than-ideal position.
However, it is important to acknowledge that this cooling labor market trend may also coincide with increased concerns about inflation and the Federal Reserve’s potential response to it. If the Federal Reserve is forced to raise interest rates in response to rising inflation, it could lead to a decline in job growth, further impacting the labor market’s recovery. While it remains to be seen if this scenario will unfold, it is worth keeping an eye on.
Looking ahead, Wells Fargo analysts expect another step down in the job growth in Friday’s employment report and more weakness to come later this year and into 2024. While this projected slowdown in job growth may be a cause for concern, it is essential to remember that overall, the labor market is still in recovery mode, and it may take time for it to reach a new equilibrium. The moderation in labor demand may be a necessary step towards achieving this balance, paving the way for a more sustainable, stable labor market in the future.
