Fewer workers quit (rattled by layoff headlines?), so fewer vacant slots to fill and less hiring. But actual layoffs are at historic lows.
By Wolf Richter for WOLF STREET.
Powell talks a lot about the balance in the labor market, about job openings, quits, layoffs, and hires – and we got the latest data today. They depict a labor market dynamic where workers hang on to their jobs rather than looking for the greener grass on the other side; they either got scared by all the layoff talk as employers re-exert control they’d lost during the pandemic, or they’re happy where they are, and they’re just not quitting anymore, and the number of quits plunged to the lowest level since early 2018.
And because fewer workers quit, there are fewer empty slots left behind that companies have to fill, so fewer job openings – though they remain historically high – and less hiring.
In other words, the historic churn in the labor force during the pandemic has calmed down, while layoffs and discharges remain at historic lows.
But in addition, and disconcertingly, creation of new jobs has also slowed down dramatically – which came out in the data and revisions last month. So we’ll start at the beginning:
Workers quit quitting. Voluntary quits fell to 3.08 million in August, the lowest since January 2018, according to the Job Openings and Labor Turnover Survey (JOLTS) data released today by the Bureau of Labor Statistics, based on surveys of about 21,000 work sites.
The three-month average fell to 3.18 million, the lowest since March 2018. The huge churn during the pandemic, when workers jumped jobs and industries to improve their lot, thereby driving employers nuts and triggering the biggest pay increases in decades, has settled down.
Fewer voluntary quits mean fewer newly open slots that have to be filled, so fewer job openings, and fewer hires to fill those openings.
For employers, this is a huge accomplishment. They have been able to re-exert control and clean out the deadwood. Pay increases have moderated because employers no longer have to poach each other’s employees by offering better pay. Productivity rises when workers stay longer and learn the ropes, which has been helpful for employers.
So fewer job openings to fill, after workers quit quitting. The number of job openings in August rose to 8.04 million. The three-month average, which irons out the month-to-month squiggles, dipped to 7.89 million, the lowest since March 2021.
This number of job openings is still historically high, and would be a record in the data except for the pandemic, but it’s way down from the pandemic’s churn.
Employment has been growing over the years. So in relationship to nonfarm payrolls, the number of job openings is historically high, and still above the pre-pandemic record of January 2019.
In August, the three-month average of job openings was 5.0% of nonfarm payroll, still above the prepandemic record in January 2019 of 4.8%. At the peak before the Great Recession, it topped out at 3.0%.
But this trend needs to start flattening out pretty soon for the labor market to remain healthy.
The number of job openings per unemployed person – another ratio that Powell cites a lot as one of the indicators of labor market tightness – remains above 1. In August, it ticked up to 1.13, meaning there are still more job openings (7.89 million three-month average) than unemployed people looking for work (7.11 million).
While relatively high, the ratio is lower than it was during the hot labor market in late 2018 through February 2020, which was one of the reasons Powell cited as sign of a labor market that is become less tight, and that the Fed doesn’t want to loosen further – hence the 50 basis-point cut.
Layoffs and discharges fell to 1.061 million in August, and the spike in July was revised back down, so the three-month average dipped to 1.63 million. All of these numbers are historically low – meaning employers are shedding people at a rate that is much lower than during the Good Times before the pandemic.
Companies are hanging on to the workers they’ve got; workers aren’t quitting; so there are fewer slots to fill, and fewer job openings, and less need to hire in order to fill those fewer job openings. This is the picture of a labor market that has settled in after huge turmoil during the pandemic.
Layoffs and discharges in relationship to nonfarm employment – a ratio that accounts for growing employment over the years – shows this trend even more forcefully.
Layoffs and discharges were just a hair over 1% of nonfarm employment over the past several months (1.02% in August).
There have been speculations around here at the shop that employers are clinging to their staff because they got burned by the labor shortages after the pandemic when they couldn’t easily rehire the masses of people that they’d let go in the early months of the pandemic. And we speculated that maybe employers actually learned something about the value of retaining talent – and that would be a good thing for everyone, including employers.
Hires dropped to 5.32 million in August – down from July, but up from June. The three-month average dropped to 5.33 million.
Fewer quits and historically low layoffs and discharges as employers hang on to their workers mean fewer job openings to fill, which means less need to hire.
But an additional and more disconcerting reason is that employers are creating new jobs at a slower rate than during the Good Times before the pandemic. The deterioration over the past three months was one of the factors Fed speakers cited for the 50-basis-point cut.
The ratio of hires to nonfarm payrolls dropped to 3.4%, below where it had been in the 2017-2019 years, which were considered a tight labor market (amid Fed rate hikes and QT).
So the labor market has settled down, and fewer people quit, requiring less hiring; but in addition, employers have slowed creating new jobs. And we can see that here too:
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The balance of power is shifting…Amazon already fired the first shot of 5 days back in the office, expect many if not all eventually will follow IMHO. Crazy how this is all before any sign of a recession, imagine how much more big corp America will push for if we experience another 2008..
To the many who think remote or hybrid work is forever a thing…this is what over-optimism looks like..buy a house in Boise at work remote collecting a fat salary because what happened in a year or two will somehow extrapolate into being the future forever…that’s a funny one..
Yep, a few folks in my neighborhood that were “working from home” are now getting up and driving to the office in the early morning rather than to the golf course for an early tee time. One heads out before 6:00 AM!
Early bird gets the worm… At 6AM roads are actually already quite busy in Chicago, so maybe that’s the reason.
And soon we will hear complaints how people have to sit in traffic for hours each way, because they were working remotely and bought a house far away from physical offices.
I met my wife for dinner at a Japanese restaurant here in SF in the South of Market area near the Salesforce tower. I was on foot — thankfully because the downtown era was gridlocked. Throngs of people on the sidewalks. She drove up from Silicon Valley, got stuck in traffic, and was quite a bit late. The Dreamforce event was going on. It was just total chaos.
Productivity tidbit as perspective:
“ George Pearkes at Bespoke Investment Group said right now, there’s already a lot of investment in advanced manufacturing. Think: electric vehicle batteries, solar panels and semiconductors.
In other words, valuable products that don’t require a lot of labor.
“If you’re producing a lot of stuff, and it doesn’t require a ton more hours to do that, that’s going to mean everybody is better off ultimately. Because there’s more income flowing around, it means that we have a higher standard of living,” Pearkes said”
Add on to that, with people being laid off who are becoming pizza delivery entrepreneurs and the vastly growing gig economy that chugs along with creation of mini jobs
“Add on to that, with people being laid off..”
RTGDFA. Layoffs are at historic lows.
Even the guy you cited wasn’t talking about layoffs, but about NEW high-tech manufacturing plants being created that require fewer NEW jobs.
From what I see in manufacturing – many employees now work less hours (no overtime and some only 32hrs), which could explain the low layoff figures if the trend follows in other industries. This helps employers with salary expenses as well as finding and training new employees.
My experience is that many companies are bringing employees back to the office but with worse effects. Many places downsized space and got to hotelling. What this means is you commute to work, pay for parking, and then simply dial into meetings and for collaboration. This just pisses employees of as if you can’t reap the benefits of in person collaboration, which I think for many things is important, then why bother?
5 days a week does seem like a solid strategy to reducing the workforce and not having to pay unemployment. Big downside is might lose employees you don’t want to. I’m still 100% telework so hoping that continues. Really hard to imagine and more than 2 days a week. After over four years of 100% this is my new normal.
Any idea of how many of “the quitters” are late boomer retirees?
Zero. Retirements are not in “quits” but in “other separations.”
The labor market is cooling substantially, yet inflation still has not reached the Fed’s 2% target.
Powell & co are in a pickle.
and inflation is re-accelerating
And inflation won’t come down until yoy rent increases fall from 5.6% (as captured by the CPI). Rent is directly proportional to demands on wage increases at this point, in the current state of the economy. Inflation isn’t coming down until wage increases come down which won’t happen until rent increases come down. Everone knows that the shelter component is the root of all problems at the moment, but all government is doing is looking for new ways to push up shelter prices.
Love your data reports. Real world validation of economic theory with lags.
Classical economists made incorrect assumptions about instantaneous adjustments in wages and prices. In reality it is a process and this data shows it.
Thanks again for sharing this stuff
Nice
Home owners with low interest rates might want to stay put instead of looking for work elsewhere.
This looking for a new job thing seems quite stressful, quiting, moving, finding new lodging, new people to work with. Seems like a lot of energy…comes on kids were moving to Idaho.
One of the conditions for the dock workers strike is automation, theirs is a job that can be eliminated by the robots…I am the robot I’m here to help.
Correction for “Home toad”, it low mortgage rates you idiot.
Nice clean analysis. But confused about one thing: Number of “job openings” are considerably higher than 2019, but number of “hires” are considerably lower. What does this mean? Does it mean that companies open positions with a speed higher than 2019, but they are filling them at a much slower rate? Why?
The article explains that in detail. Start reading with quits at the top — hint: THAT’S THE KEY, which is why I put it at the top — and gnaw your way through the article bite by bite all the way down the article. You’ll get it. That’s WHY I wrote the article.
One more interesting fact: It seems that actual number of layoffs is much lower than what most people think based on the headlines. Probably there is a mismatch between what is seen on media vs overall industry.
Maybe before the pandemic, the layoffs did not make headlines as they do today. That’s why many people think there are lots of layoffs. But in reality, the overall layoff volume is smaller. Indeed, most of those tech companies, which are making the headlines about layoffs, have still much larger head counts when compared to prepandemic (may be except for Twitter).
Or, those layoffs making the headlines are negligible amount in total volume when compared to overall workforce.
Employees have a lot more wage power than acknowledged. If that weren’t true, employers wouldn’t be trying so desperately to hold onto workers they have during supposed lower revenue. Look at the Boeing strike. Look at the port worker strike. Boeing is currently offering about a 10% raise a year for four years as part of that contract. Dock workers are demanding about 11% wage increase per year for six years. Employers have the upper hand on wages? Lol! Good luck.
A union is a different deal. Only a tiny portion of the US labor force is in a union. Unions have the legal power to slowly strangle an employer. If a union is reasonable, it’ll work with the company, and both thrive. But that’s not always the case. Years of union demands before the Great Recession ended up sending two of the US automakers into bankruptcy during the Great Recession, and it was in bankruptcy court that they shed some of those issues. Some point to Yellow as a more recent example of a union sending a weakened company into bankruptcy and liquidation – which Yellow’s CEO explained in detail. If union bosses want to get in the headlines and “make history,” instead of being reasonable, the worst can happen to workers and the company, though the union bosses might come out ahead. If union bosses are reasonable, all parties can thrive.
I’ll chime in as one of those job creators who is simply….not adding jobs.
The labor turmoil during the pandemic convinced us to put a massive amount of effort into three things: upskilling our talent, investing in automation everywhere it was feasible, and documenting/proceduralizing everything possible.
The net result is that going on almost 5 years of serious focus on this, we’ve just about doubled our client base and kept our staffing static. It’s taken a lot of work, but the effort is paying off:
1. Smaller workforce = easier to manage, flatter /more nimble organization
2. Fewer managers
3. Higher wages for the staff
4. Minimal HR headaches
5. Less “friction” within the organization due to less turnover/new training
6. Fewer costs related to talent acquisition, training, etc.
7. Key for us: staying below the 50 employee threshold….
We’re in technology management.