Some cooling in the labor market? 3 signs from last week

DEWITT, Mich. - Sept. 5, 2023 - PRLog -- Key Takeaways

• This past week, key datapoints around the U.S. jobs market presented a unified message: There are early signs of softening ahead in the labor market. While one month doesn't make a trend, data recently have consistently pointed to a labor market that may be coming back to earth after an extended period of elevated gains.
• We see two important implications of a potentially cooling labor market:
  1. The Federal Reserve would likely view this data as supportive for keeping interest rates on pause.
  2. Upside on Treasury yields may be capped in the near term, given a softening labor market may imply softer economic growth and easing inflationary pressure.

3 recent signals of a cooling labor market

1. Job openings and quits rate are falling.

Two key leading indicators of the labor market — job openings and the quits rate — are showing signs of rolling over. This past week, the JOLTS (Job Openings and Labor Turnover Survey) data for July fell to about 8.8 million, below the expected 9.5 million and June's 9.2 million reading. This would be the lowest reading since March 2021.

Fewer job openings and fewer workers quitting jobs generally imply lower confidence in the labor market. Typically, if workers aren't confident they can find new jobs, they are less inclined to quit their current jobs. More broadly, a key driver of household consumption is a solid labor market and confidence in employment. If the job market is softening, this may lead to lower consumption patterns over time as well.

2. ADP private payrolls are cooling alongside pay gains.

The ADP private payroll data for August also came in below expectations. Total job gains were 177,000, below an expected 194,000 and well below July's 324,000 reading. According to ADP: "This month's numbers are consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, we're moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede."**

3. Unemployment ticks higher as labor force participation picks up.

Perhaps the most visible jobs report of last week was the U.S. nonfarm payrolls report for August. This report was somewhat mixed, as total nonfarm jobs of 187,000 were above expectations of 170,000 but below this year's average of 236,000.*

July's job gains were also revised lower, and notably, the unemployment rate ticked higher, from 3.5% to 3.8%.* This came as the labor force participation rate ticked higher to 62.8%, the highest level in the post-pandemic era.

Sources: *FactSet, Edward Jones  **ADP National Employment Survey Report 8/30/2023