Commentary Directory

Labor Market Indicators are Starting to Unify on Easing in Hiring

Jacob Hess
August 30, 2023

The labor market is finally loosening, and several indicators are coming together to support that. The preshow to the BLS jobs report, the ADP National Employment Report, recorded job growth of 177,000 in August, down from 371,000 jobs added in July. The July employment increase was upgraded by 47,000 from the previous reading of 324,000 in a slight nod to labor market strength, but that was the extent of the signals of strength. The job gains were still heavily in the services sector with another substantial 154,000 gain there, but within that sector, the gains were more spread out. The robust growth of employment in business services and leisure & hospitality has slowed and was just 15,000 and 30,000 this month. The services sector was also slightly distorted by a strong increase in education (52,000) that came as a result of schools being back in session following the summer break.

From ADP

More weakness can be found in the ADP’s wage data which pointed to a significant easing in the growth of annual pay in August. For job changers, annual pay growth reached the lowest since July 2021 at 9.5% YoY, down from 10.3% YoY last month. The softness in pay growth for job changers in August matches up well with the decline in the total number of quitters in July from the JOLTS data yesterday. There are increasingly weaker incentives for employees to jump ship to other positions as job prospects gradually become dimmer. Pay growth for job stayers also slowed, down -0.3 ppts to 5.9% YoY, but the deceleration was much slower than for job changers’ pay growth. The spread between the two has reached the lowest since May 2021.

The ADP data jives well with JOLTS July release where it was discovered that the trend in falling job openings was continued. Specifically, job openings fell over -330,000 from June to July to 8.8 million. The decline over the last year has been -2.4 million from a total of 11.4 million in July 2021. The sharpest decline over the past year has been in the business services industry where openings fell -750,000 in that period. It is no surprise that this sector has also seen a sharp slowdown in the pace of hiring over the past few months. As mentioned before, the number of quits reported by the BLS has also come down substantially. From June to July, total quits fell -253,000 to 3.5 million and was down more substantially over the past year, down around -460,000. This is basically back to the average amount of quits observed just before the pandemic (the average in Q4 2019 was just under 3.5 million).

The Fed will have a lot of new data to think about in its next meeting. It will be happy to see several of the employment indicators cooling together to provide broad evidence that the labor market is loosening. At the same time, the Fed will hope to see this while the unemployment rate remains near the current low level. Further confirmation of the trend of labor market easing this Friday might be convincing enough to keep the FOMC members from opting for a final hike in September.