By Ryan O’Donnell and Mike O’Donnell
As the dust settles from the tumultuous employment shifts catalyzed by the pandemic, recent reports indicate a marked decrease in the number of Americans quitting their jobs. With this trend peaking in November 2021, we are witnessing an evolving labor market, gradually settling down from its red-hot tempo.
At its zenith, the quit rate reached an unprecedented 4.5 million. Fast-forward to May 2023, and the Labor Department recorded a figure closer to four million. The quit rate, denoting the number of resignations relative to total employment, descended from 3% in April 2022 to an average of 2.5% from March to May this year. That is a number slightly above the pre-pandemic level, but it nonetheless signifies a cooling trend.
Despite the diminished quit rates, top-line hiring remains robust. Through May this year, employers added an average of 314,000 jobs per month. Furthermore, ADP estimates that private-sector employers introduced nearly half a million jobs in June. This burgeoning employment data underscores the notion that further rate increases from the Federal Reserve are necessary to maintain economic equilibrium.
The pandemic brought a flurry of job transitions with workers seeking higher wages, fully remote roles, and re-evaluating their career paths. This phenomenon, coupled with the labor shortages in various industries, forced employers to grapple with an unpredictable labor market. Now, with the recent cooldown, economists anticipate a potential softening of demand for workers, reflecting lower confidence among employees about finding better job opportunities.
From a broader economic standpoint, the indicators are hinting at a slowing economy. After a promising start to the year, consumer spending cooled in May, and the imports, acting as a barometer of expected demand, recorded their lowest level since late 2021.
A slowing labor market could be a silver lining for the Federal Reserve in its mission to contain inflation by slowing the economy through higher interest rates. While employees switching jobs often secure bigger raises, potentially fueling price increases, these pay gains have begun to dwindle recently.
As we traverse this ever-changing economic landscape, it's crucial for businesses and employees alike to remain nimble and adaptable. The economic upheavals of the pandemic era have highlighted the need for strategic planning and foresight in both financial and human resource spheres.
In the post-pandemic world, employers who continue to value their employees, offering competitive pay, attractive benefits, and flexible working conditions, will likely navigate the cooling labor market most successfully. For employees, it's essential to balance the allure of job-switching against economic stability and personal career aspirations.
As your trusted financial partners, we remain committed to helping you make sense of these dynamic market trends and advising you on the best strategies to adapt and thrive in this cooling labor market.