Minneapolis (CNN) While other parts of the economy are sluggish, the U.S. labor market is keeping trucking healthy.
But the high-octane ride is showing some signs of wear and tear amid the Federal Reserve’s years-long efforts to curb inflation by curbing demand.
Job cuts are mounting, hiring activity is losing momentum, and there is uncertainty about how the recent turmoil in the banking sector might ripple through the economy.
“To me, I think that sums up where we are in the labor market [the chart in this tweet] By Bloomberg’s Chief Economist [Michael McDonough]The earnings calls show that there are now more references to job cuts than references to labor shortages,” said Julia Pollock, chief economist at online employment site ZipRecruiter. “This is a big reversal after 2021 and 2022. They were talking about shortages and how everyone was struggling to find workers.”
“We are now at a critical juncture,” he added.
Just how much has changed will become clearer on Friday, when the Bureau of Labor Statistics releases its much-anticipated jobs report for March.
Economists expect monthly job gains to slow, with consensus estimates coming in at 240,000, according to Refinitiv. That would be a significant drop from the 311,000 jobs gained in February and a significant drop from the net gain of 504,000 in January.
Refinitiv estimated the monthly unemployment rate was steady at 3.6%; Average working hours unchanged at 34.5; And average earnings for the month rose slightly (0.1 percentage points) to 0.3%, which would reduce annual average hourly earnings growth from 4.6% to 4.3%.
‘Employers are retreating’
If the labor market data released so far this week serves as a proxy, the March jobs report should show some significant cooling:
On Tuesday, the latest reading on labor turnover showed that US job openings fell below 10 million for the first time in more than a year and a half. According to the BLS’s Employment and Labor Turnover survey, the number of available jobs fell to 9.93 million in February.
The recent decline in employment indicates that the labor market is somewhat sluggish: the number of jobs available per job seeker is now less than 1.7. In January, that ratio was nearly 1.9.
Online job postings have shown a sharp rebound in recent weeks. In fact, data from the Hiring Lab shows that since March 24, postings — both overall and new — are down from a month earlier.
In addition, the share of posted benefits such as health insurance, paid time off and retirement plans has declined, Nick Bunker, head of economic research at the Indeed Hiring Lab, told CNN.
“This suggests there may be a fading of competition for hiring now,” he said.
On Wednesday, payroll processor ADP’s latest private sector jobs report came in at 145,000 for March, falling below expectations.
“Employers are pulling back from a year of strong hiring; wage growth is slowing after a three-month plateau,” ADP chief economist Nela Richardson said in a statement.
On Thursday morning, the Challenger Gray & Christmas reported that U.S. employers reported 89,703 job cuts in March, a 15% pickup from February and more than triple the number from a year ago (when the labor market recovery was in full swing).
The Challenger reported that hiring plans fell to 9,044, marking the lowest March since 2015.
March’s job cuts brought the first three-month total to 270,416, the seventh first-quarter job cut announcement in the past 35 years.
Nearly half of the layoffs came from the technology sector, where many companies are scaling back significantly after heavy hiring during the pandemic. Financial institutions reported the second-highest year-to-date job cuts, with 30,635 layoffs, Challenger reported.
On Thursday, the latest weekly jobless claims data, showing continuous claims filed by people who have received jobless benefits for more than a week, continued its upward march to 1.823 million in the week ended March 25. December 2021. Economists expect 1.699 million, according to Refinitiv.
Weekly claims totaled 228,000, down from an upwardly revised total from a week ago but above economists’ expectations of 200,000. (Starting with Thursday’s report, the Labor Department made significant revisions to data from recent years to better account for pandemic-period dynamics).
Possible red flags
The overall strength of the job market — and ongoing demand in jobless industries such as leisure and hospitality and health care — offset losses seen in technology and financials.
There is still uncertainty about the extent to which those and other layoffs may ripple through the broader labor market. That uncertainty has only grown in recent weeks as a result of the turmoil in the banking sector.
“Other banks don’t need to fail to see the impact,” Daniel Zhao, lead economist at Claustour, told CNN. “But the impact is that if banks pull back on lending to businesses, preventing businesses from continuing to expand their numbers, then we can see the impact on the labor market through the subtle ripple effects of the banking crisis that started in March.”
While it will be too soon to see those ripple effects in the March jobs report, Zhao said he still expects monthly job gains in the 200,000 to 300,000 region. However, he noted that he will be closely watching certain metrics in the jobs report that could show whether the U.S. labor market is slowing from its post-pandemic highs or beginning to slide into recession territory.
Some potential red flags might include: if the number of headline jobs is between zero and 200,000, and if the unemployment rate rises 0.2 percentage points or more.
“The concern then is that it’s starting to look like the beginning of a recession because we’ve already seen a 0.2 percentage point increase. [in the jobless rate] January to February,” he said. “So if we see another one, it starts to add up.”
In addition, a drop in average workweek hours may indicate that supply has sunk enough to force businesses to cut back hours, he said.
Industries at risk
Economists, by and large, are still factoring in a recession later this year. Although it will be “narrow and shallow,” the recession will affect some industries more than others, according to new research from the Conference Board.
A business membership and research group this week introduced the Job Loss Risk Index, which estimates which industries are likely to experience the greatest job losses during a recession.
According to the company’s findings, the highest-risk industries include information services, transportation and warehousing, and construction.
Employment in these industries increased during the pandemic as telework and e-commerce proliferated. However, that situation has changed as people have returned to work and shifted spending to service-based industries. Additionally, high interest rates have made borrowing more expensive and vulnerable industries such as housing.
The next tier of industries classified as “high” risk includes: repair, personal and other services; manufacturing; Wholesale trade; and real estate. Industries with “very low” or “low” risk include private education services, health care, public sector employment, retail sales, food services, and arts and entertainment.
What this means for future rate hikes
Friday’s jobs report will be the monthly employment report ahead of the central bank’s next policy-making meeting on May 2-3, as April data will be released on May 5.
While the March report may show continued slack in the labor market — particularly wage gains and job growth — it won’t prevent the Fed from approving a third straight quarter-point rate hike in May, Oxford Economics lead U.S. economist Nancy Vanden Houten wrote in a note on Tuesday.
“Labor market conditions may not be moderate enough to convince the Fed that inflation is easing enough to return to its 2% target,” he wrote.
Oxford Economics expects quarter-point rate hikes at the central bank’s May and June meetings, noting that a later-scheduled hike is more up in the air due to pressure from the banking sector.
The Bureau of Labor Statistics is expected to release its March jobs report at 8:30 a.m. ET on Friday.
