The U.S. job market, though still robust, has entered a phase of increased competition for job seekers, signaling a gradual cooling from the previously overheated conditions. According to the latest data from the U.S. Bureau of Labor Statistics, job openings fell to their lowest level in over three years in April, a clear indication that the labor market is starting to normalize after the tumultuous pandemic years.
National job openings decreased by 296,000 to approximately 8.1 million in April, the lowest since February 2021. This decline highlights a potential weakening in employer demand for labor. Despite this, Julia Pollak, chief economist at ZipRecruiter, reassures job seekers, stating, "Don't get discouraged; there are opportunities out there. This is still a strong labor market."
The job market's cooling is evident in several key metrics. The ratio of job openings to unemployed workers has returned to pre-pandemic levels, with about 1.2 job openings per unemployed worker in April, down from a peak of nearly 2:1 during the height of the pandemic recovery. Jason Furman, an economics professor at Harvard University, noted this adjustment, emphasizing the shift back to more typical labor market conditions.
Additionally, the hiring rate and the quits rate, which gauges worker confidence in job prospects, have both fallen below pre-pandemic levels, remaining unchanged in April. Daniel Zhao, lead economist at Glassdoor, noted that the reduction in both quits and hires likely explains why some perceive the job market as sluggish, particularly for new or returning workers.
While the job market has softened from the unprecedented highs of 2021 and 2022, when it was dubbed the "great resignation" era, it remains fundamentally strong. The U.S. Federal Reserve's efforts to curb inflation by raising borrowing costs have contributed to this cooling. Thomas Ryan, a North America economist at Capital Economics, observed that recent labor data suggests a normalization toward a pre-pandemic baseline, which was itself a period of historically low unemployment and solid wage growth.
Despite the cooling, the job market retains significant strength. Total job openings still surpass their pre-pandemic peak, and the layoff rate has stayed near historical lows for over three years. The national unemployment rate has remained below 4% since February 2022, a level indicating robust labor market health. Moreover, wage increases have outpaced inflation over the past year, enhancing workers' purchasing power.
However, some workers may feel disappointed with the current state of the job market compared to the exceptional conditions experienced in 2021. Pollak from ZipRecruiter cautioned that such high expectations are not sustainable, stating, "2021 may have felt fantastic for jobseekers, but it's not the way things worked before and it's not the way things will be forever."
Economists believe that the gradual cooling of the job market might prompt the Federal Reserve to consider lowering borrowing costs for consumers in the near future. This potential easing of monetary policy could provide further support to the labor market, balancing the need to control inflation with maintaining employment levels.
In a parallel development, the latest JOLTS report from the Bureau of Labor Statistics showed that job openings fell by 296,000 to 8.059 million in April. This reduction brought the number of available jobs per job seeker to its lowest in nearly three years. Despite the drop, the quits rate, a measure of worker confidence, remained steady at 2.2% for the sixth consecutive month, indicating that many workers still feel secure enough in their job prospects to voluntarily leave their positions.
Economists expect the Federal Reserve to keep its policy rate steady in the upcoming meeting, maintaining the current range of 5.25%-5.50%. However, financial markets are already pricing in potential rate cuts later in the year, contingent on continued signs of economic cooling and inflation moving toward the Fed's 2% target.
As attention turns to the upcoming May jobs report, expected to show a steady unemployment rate at 3.9%, the job market continues to be a focal point in understanding the broader economic health. While challenges remain, the current labor market reflects a more sustainable and balanced environment compared to the extraordinary conditions of the recent past.
