94.7% FORECAST ACCURACY || BUSINESS-MINDED ECONOMISTS || UNBIASED AND APOLITICAL
Though the labor market has loosened slightly from the atypically tight conditions of 2021 and 2022, it still remains tight. The following is a snapshot of different aspects of the labor market, how they are trending, and what it means for your business.
Employment typically lags the macroeconomy, as businesses are often reactionary in their workforce decisions. US industrial and retail activity is plateauing while US Corporate Profits are moving lower; this softening activity has slowed growth in Employment but has not yet resulted in a decline. US Private Sector Employment has reached record highs for twelve consecutive months. As economic data weakens further during the mild recession in 2024, we expect that downward pressure will spill over to the labor market and result in declining Employment in the latter half of 2024 and the start of 2025. However, the labor market will remain tight throughout this period, as signaled by demographic trends, including the aging workforce.
Annual average US Nonfarm Job Openings are declining but are still roughly three million higher than pre-pandemic. As of May, there were roughly five jobs available for every three unemployed people, indicating a still-tight labor market.
Keep in mind that hiring trends differ by market and region. Job openings for the construction and healthcare sectors are seeing milder decline than total Job Openings, while job openings in the manufacturing sector are declining more steeply. By region, Job Openings in the South have experienced a milder percentage of decline from their mid-2022 peak compared to decline in other regions. Make sure you are tracking labor trends in your specific markets and regions of operation.
The US Private Layoffs and Discharges rate, which is all separations initiated by the employer, is rising but trending below the pre-pandemic long-term average. On the employee side, the annual US Nonfarm Quit Rate has been declining since mid-2022, suggesting that workers are becoming slightly less confident about their ability to find a new job.
The tight labor market is putting upward pressure on wages, but at a slowing pace. US Overall Wage Growth, which excludes overtime pay, tips, and commissions, has declined from the August 2022 record high of 6.7% to 5.6% in June 2023, but is still elevated relative to historical norms. Upward pressure on wages stemming from labor market tightness is likely to persist in the coming years at least.
Despite some loosening, the labor market will remain relatively tight in the coming years. Investments in labor-saving improvements or efficiencies, including automation, will likely prove worthwhile. Focus on retention strategies for your current employees; make sure your pay and benefits are competitive for your industry and geographic region and focus on your company culture.
While markets will have different sensitivities to the upcoming macroeconomic downturn, on the whole we anticipate a mild recession. Keep this in mind when considering changes to your workforce. If you are thinking about cutting positions, be sure to weigh your short-term cost savings against the down-the-road expenses of hiring and training as the economy recovers in 2025.