-605K Job Openings in June 2022 – America’s Job Market Is Starting to Slow Down.
This does not displease the Fed in its fight against inflation.
The job market is booming, with almost twice as many job openings as job seekers. Those who are looking for a job find it easily, and those who want to change careers do so easily as well. To attract or retain talent, companies must offer higher salaries.
This is the state of the U.S. labor market. This phenomenon accompanied the post-pandemic recovery, but the rampant expansion of this market now appears to be slowing. As of June 2022, there were 10.7 million job openings, up from 11.3 million in May, the U.S. Bureau of Labor Statistics reports. This is the lowest level since September 2021.
But it's another number that stands out in the data: the difference between the two months (-605,000) is the largest drop ever recorded in the Bureau's data (if you exclude the first two months of lockdown, in 2020, which are a major force). This public body has been collecting this data since 2000.
Companies start hiring less, instead of laying off
Between the two months, the other data changed less. 6.4 million people were hired (compared to 6.5 million in May 2022), 4.24 million people quit (same figure) and 1.3 million people were laid off (compared to 1.4 million in May 2022). In other words, there are still just as many fish in the lake, but the lake has gotten smaller.
Open positions are the first to be cut, amidst an economic downturn and the risk of recession. When recessions occur, many people think that layoffs are the main reason for rising unemployment and falling employment levels, but that's not what's happening. Layoffs usually only increase very, very slightly. During a recession, the action is in job openings and hiring, and job openings decrease dramatically during a recession.
Companies prefer to reduce job openings rather than shed people, at least for now. Employers are saying, “We're not going to lay off, but we're going to give up on finding some of the talents we want.”
This phenomenon is a good thing for the fight against inflation
So is this drop in job openings a sign of the recession? Yes and no, one might answer. On the one hand, it shows that companies want to cut back, but on the other hand, the signals used by the National Bureau of Economic Research, which is the only one able to officially declare a recession in the United States, are still green.
In the end, a loss of momentum in the labor market is often seen as a tool to fight inflation. If there are fewer vacancies, people will more easily keep their jobs (instead of going elsewhere), and applicants will more easily accept an offer. Companies no longer have to offer higher-than-usual salaries to keep or attract talent, which reduces the pressure on prices. But it remains to be seen whether this decline in job offers is a harbinger of a decline in hiring and an increase in layoffs.
So a reduction in job openings is welcomed, especially on the Fed's side, as long as it doesn't affect hiring and firing. Very concretely, there are 5.91 job seekers in the US in June 2022, for 10.7 million job openings. The ratio is 1.8 (compared to more than 2 after the pandemic, as noted above), which is a sign that the labor market still has power, despite early signs of slowing.
The July 2022 data (released in early September 2022) will be an interesting element to see if this sharp decline becomes a real trend. The Fed, which will announce another interest rate hike at the end of September, will be paying close attention to these figures. It relies on the strength of the labor market to legitimize interest rate hikes. As long as this famous ratio does not get too close to 1 and hiring remains constant, we can expect interest rate hikes in the months to come.
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