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June 2022 Labor Market Update

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U.S. labor markets continue to remain tight

US labor markets continue to remain tight as competition for talent is still high as evident by the increase in job openings within sectors such as transportation, warehousing and utilities, nondurable goods manufacturing and durable goods manufacturing. Separations and quits decreased MoM, however both increased YoY indicating that employees are still voluntarily leaving jobs in pursuit of better opportunities. Employers are holding onto labor as layoffs decreased MoM and YoY. The unemployment rate stayed the same, while the labor force participation rate slightly increased indicating that there are many Americans that are not a part of the US labor force, specifically 5.6 million that would like a job, but are currently not looking. Americans are dealing with inflation as it impacts all facets of life including wages. Nominal wages are behind real wages as inflation has increased YoY by 8.2%, while the average hourly earnings have only increased by 5.4% during the same period. Despite inflation, Americans continued to spend this past Memorial Day weekend on travel, dining and gas. TSA checkpoint numbers reveal that 37.4% more Americans were screened on Memorial Day compared to 2021, while seated dinner reservation data was also up in comparison to pre-pandemic levels.

The US labor market remains unchanged

Job openings declined by 3.8% from March to April, however increased by 23% YoY. There were 5.4 million more job openings than workers available, while job openings continued to outpace hiring by a factor of 1.7. The number of job openings to job seekers continued to remain at 1.9 as employers are still struggling to fill vacancies. Job openings were up in transportation, warehousing and utilities (+97K), nondurable goods manufacturing (+67K) and durable goods manufacturing (+53K), while the largest decreases were in healthcare/social assistance (-266K), retail trade (-162K) and accommodation/food services (-113K).

Hires decreased by 0.9% from March to April but experienced a 7.6% increase YoY. Similarly, separations decreased by 3.4% MoM, but YoY increased by 4.9%. Net employment increased by 39.3% from March to April, while increasing by 50.3% YoY.

Total separations increased YoY

Total separations – the summation of quits, layoffs/discharges and other separations decreased by 3.4% from March to April, however increased by 4.9% YoY. The recent numbers show that the labor market is still tight as American workers believe they have options and employers are reluctant to lay off workers given the labor shortage. Quits decreased by 0.6% MoM, however increased by 10.2% YoY. Quits were up in real estate and rental and leasing (+37K) and down in state and local government education (-19K). Layoffs/discharges decreased MoM and YoY by 12 and 10%, respectively.

Gains in Employment and Average Hourly Earnings

The YoY growth in employment and average hourly earnings is considerably the highest for Leisure & Hospitality as businesses are trying to find summer workers such as lifeguards and snack vendors for summer pools. Although the job market is still attractive to job seekers, many students currently enrolled in college are leaving higher ed in pursuit of the current monetary opportunities that come with employment. The opportunity cost of employment is forgoing education. Research from labor economists at Georgetown University finds that the median net present value for all colleges is $723,000 in the long term (40 years after enrollment), but only $107,000 in the short term (10 years after enrollment).

Unemployment Rate & Labor Force 

The headline unemployment rate (U-3) for the third straight month remained unchanged at 3.6%, indicating that the US labor market is still very tight. Other measures including the labor force participation rate and employment to population ratio also confirm a strong labor market. The labor force participation rate increased from 62.2 in April to 62.3 in May, while the employment to population ratio also increased by 0.1. The alternative measures of labor utilization such as the (U-6) unemployment rate which captures the marginally attached (discouraged workers) and those that work part-time for economic reasons increased MoM by 0.1% points to 7.1%.

There are still 537,000 fewer civilians in the labor force and the labor force participation rate is 1.1% below pre-pandemic levels.

Despite the shortage of workers, the number of non-farm jobs increased by 390,000 for the month of May with the largest gains made in the following: leisure/hospitality (+84K), professional business services (+75K), and transportation/warehousing (+47K). Real-time data from EMSI’s job postings shows an 18% increase in job postings from April to May, and a 34% increase YoY.

Future monetary policy may impact US labor markets

As the Federal Reserve increases the federal fund rates, many expect this to push aggregate demand downwards, resulting in firms hiring less people, leading to a slightly higher unemployment rate. Policymakers are trying to minimize the loss of jobs while also controlling inflation. Former US Secretary of Treasury, Larry Summers argues that inflation will only come down if wage growth also comes down. The gap between job openings and hires continues to remain high despite the Federal Reserve raising rates last month. Monetary policies’ impact on labor markets is lagging and takes about six to eight months to truly impact labor markets. The uncertainty of inflation, a possible recession, supply chain issues, and geopolitical conflicts will also impact how firms hire, and whether there will be a possible reduction in job openings resulting in a less tight labor market. 

There is mixed sentiment regarding returning to the office

Recent Kastle data measuring office occupancy rates for ten US metros shows that the average occupancy rate for the top 10 US metros is 42.9%. New York City is still below the average, with an occupancy rate of 38.0%. New York City mayor Eric Adams has urged New Yorkers to return to the city via mass transit, however some New Yorkers cite public safety as a concern and would rather avoid the time-consuming commute.

The ability to work from any location is still highly coveted by many jobseekers

According to LinkedIn, 13.4% of all job listings in April 2022 offered remote work, in comparison to 6.9% in April 2021. Although technology, information and media possess the highest share of remote jobs, there have also been several layoffs in the last few months by several start-ups. According to TrueUp, 65 tech companies have laid off workers this past year, and 88% of startup founders are worried about the current fundraising environment, citing operating cash as a major concern. Although there is a slowdown in hiring by startups, vacancies for software developers have increased by 123.2% from February 2020 to May 2022 according to Indeed Hiring Lab. There is still some mixed sentiment regarding remote work versus in-office work.

News on this topic:

Elon Musk announced last week that Tesla workers need to work in the office citing that Tesla’s innovation and success was directly linked to in-person work rather than remote work.

Remote work and housing are very closely linked

National Bureau of Economic Research (NBER) research published by economists John Mondragon and Johannes Wieland last month found that remote work influenced housing price growth from December 2019 to November 2021 by 1.47 percentage points. As more Americans shifted to working from home, the demand for larger living spaces increased, as evidenced by the rising home prices and fixed supply of housing. The most recent S&P CoreLogic Case-Shiller US National Home Price Index shows that home prices rose by 20.6% in March YoY, one of the highest year-over-year price changes in more than 35 years.

Americans are leaving large coastal cities

Recent migration data shows that Seattle experienced the largest YoY percent change in net outflow. Although Seattle is home to some of the largest employers such as Amazon and Starbucks, the monthly mortgage in April 2022 for a single family residential is $4,071, up by 49.7% since April 2021 and $2,933 for the average rent, up by 30.6%.

Inflation has caused many Americans to dip into their personal savings

The US personal savings rate is at its all-time low of 4.4%. The consumer price index for all urban consumers increased by 0.3% MoM and 8.2% YoY for all items in the consumer basket. Shelter, food and transportation represent the largest portion of an American consumer’s basket, with all three categories exhibiting increases over the past year. Recent data from the Bureau of Labor Statistics reports that all sectors experienced an increase in hourly compensation over 2022Q1, however experienced a decrease in real hourly compensation, implying that nominal wages are lagging inflation. Inflation has increased YoY by 8.2%, while the average hourly earnings has only increased by 5.4% during the same period.

Despite high prices, Americans continued to spend this past Memorial Day weekend on travel, dining and gas

TSA checkpoint numbers reveal that 37.4% more Americans were screened on Memorial Day compared to 2021, while seated dinner reservation data was also up in comparison to pre-pandemic levels. AAA predicted that 35 million Americans would hit the road this past Memorial Day weekend given pent-up travel demand. Although gas prices continue to climb, Americans are still sensitive to the price changes. AAA reported that 67% of surveyed Americans would change their driving behavior if gas prices reached $4.50 a gallon, and the percentage goes up to 75% when gas reaches $5 a gallon. As of June 1, the national average is $4.67 a gallon.

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