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Is the Job Market Returning to Normal?


By Jay Denton


The latest employment report from the U.S. Bureau of Labor Statistics (BLS) was much better than expected. An estimated 336,000 jobs were added in September, the highest total since January and close to double what economists expected. The unemployment rate was 3.8%, and wages were up 4.2% on an annual basis, both suggesting a continued tight labor market.

Job openings increased to 9.6 million, while layoffs were practically unchanged from the prior month. Just looking at those two metrics, one would also assume businesses were more optimistic about the economy and anticipated to be in headcount-expansion mode in the coming months.


Additionally, Initial unemployment insurance claims, which tend to be a sign of layoffs, were at 209,000 for the latest week published. That represents one of the lowest weekly totals of the year, and well below the peak of 265,000 in June.


In other words, so many indicators point to an incredibly strong labor market, but many are experiencing something very different from the headlines.


Why Many Do Not Believe a “Strong” Labor Market

This is the challenge. Nobody I talk to seems to believe the job market is anywhere close to being as strong as those numbers sound. We keep getting good-to-great jobs reports, but I rarely interact with people who feel it represents what it is like trying to find work today.

Here are a few anecdotal observations followed by some tangible data points.


A friend of mine who is a seasoned sales manager said that he applied for hundreds of positions and made the final round of interviews for a handful before landing a new role. Many of his peers and connections have had worse luck.


Others in talent acquisition have told me that they saw some degree of improvement in Q3, which followed a dismal Q2, but the market is not close to being back on track. This is especially related to tech and for jobs in the Dallas area, a location known for its job-creation engine.


I know some people impacted by layoffs who have quickly found new work, while others have struggled for months despite being highly qualified.


Why the Disconnect?

While most industries have added jobs this year, the latest month’s report showed that the gains were highly concentrated in just a few verticals. Roughly two-thirds of the jobs gained were either in leisure and hospitality, government, or healthcare. Those industries combined for 210,000 of the jobs added, and many impacted by layoffs aren’t fit for roles available in those industries due to either type of work or desired pay.


Related to the point above, many of the jobs added are for part-time work. In fact, the BLS’s Current Population Survey shows that essentially all the jobs gained in the past three months have been due to an increase in part-time work and a decline in full-time jobs. Both self-employment and people holding multiple jobs increased, as well.


Those switching jobs are not seeing as big of a premium in pay as they were earlier in the year. The Federal Reserve Bank of Atlanta produces a monthly wage growth tracker. It shows that the pay increase for switching jobs has moderated from 7.7% to start the year to 6.7% in September. That number is based on a 12-month moving average, which signals that the latest monthly readings are likely falling sharply.


In addition, the number of people voluntarily quitting their job was at just over 3.6 million in both July and August. Those are the two lowest totals since February 2021. Why are fewer people leaving their jobs? Is it confidence in the economy and labor market, or is there something fundamentally different about the type of work available? Triangulating those data points makes it seem like the type of work and associated pay available have changed relative to the past couple of years.


In statistics and finance, there’s a concept called “reversion to the mean,” which implies that trends eventually move toward the historical norm following periods of contraction and expansion. But what happens following several years of the most unpredictable labor markets in most of our lifetimes?


The economic and labor market fallout from the pandemic resulted in one of the largest job-loss events in history, but the recovery was just as swift for many industries. Throughout 2021 and 2022 many businesses were on a hiring spree, offering outlandish salaries and benefits to attract candidates. Now things are coming back closer to those historic norms. But it’s possible we’ve reached a new normal for some of these statistics, and we are in a period of readjustment.


Maybe some of this pessimism is just part of rebalancing and getting back to normal after such an exceptional and unusual job market during the past couple of years.


Economic Expectations for 2024

At the beginning of each quarter, The Wall Street Journal releases predictions based on forecasts from 65 economists. This quarter’s report noted several interesting observations related to the labor market’s outlook for 2024. It included a mix of good news coupled with some more sobering near-term expectations.


Let’s start with some optimistic readings. Big picture, the chances for a recession fell to the lowest level since mid-2022. While the probability of recession remained elevated at 48% (just under half of economists surveyed predicted a recession over the next 12 months), it was down significantly from 63% at this point last year. A slowdown in inflation and a strong labor market were two of the factors impacting that view.


In addition, the majority of economists believed the Fed is finished raising interest rates for now, and more than two-thirds believed interest rates would be lowered before the end of June next year.


On the pessimistic side, the pace of job gains is predicted to decline significantly in the first half of 2024, which is not good news to the ears of those in talent acquisition. As of this writing, the labor market has averaged 260,000 new jobs added per month in 2023. The economists surveyed predicted an average of just 42,500 jobs added per month in the first quarter of next year, and only 16,700 per month in the second quarter.


That said, while net new job gains are expected to be lower in 2024, turnover may remain elevated. Backfilling open roles — and preventing them through retention and compensation strategies — should be a main focus for TA and HR teams.


Keep in mind that the outlook heading into 2023 was much more dire, and some economists predicted millions of jobs would be lost this year. Even with some of the underlying challenges highlighted in this column, things could have been much worse if those forecasts turned out to be accurate.


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