Resilient US labor market remains robust

Close observers of the economy this week had to digest a bevy of indicators that provided mixed signals on the state of the labor market. Our takeaway is that the labor market is not too hot, but not too cold. Despite the upside surprise to nonfarm payrolls, the job market is not at risk of overtightening, which would set the stage for wage-push inflation. Several factors may have biased May’s payroll gain higher, and with the unemployment rate gradually rising, it is hard to argue that monthly gains of more than 200,000 jobs, on average, have been unsustainably strong.

What you will learn:

• Though job hires have steadily fallen, so too have job separations, which have kept net job growth strong. The past decline in the hires rate is consistent with less turnover in the labor market, and those sectors that have seen their rates of hiring fall the most have generally not experienced a pickup in layoffs.
• The ratio of job openings to unemployed is back to its pre-pandemic rate. This is a noteworthy milestone, as this indicator had pointed to an extremely tight labor market during the pandemic era more than others. Job openings likely overstated how tight the labor market was two years ago. We estimate that in early 2022, when the labor market was at its most taut, about 1.5mn job openings reflected either “zombie” job postings or firms simply miscalculating how much demand and turnover there was in the economy.
• We would become concerned if the downtrend in job openings persists for much longer. It is important to remember that job conditions can turn on a dime, and two sectors that have proven useful leading indicators of employment are temporary help services and construction.