Labour markets have been far more resilient than expected in early 2023. Employment has surged higher in both the U.S. and Canada and the unemployment rate is at or around multi-decade lows. Still, while traditional ‘headline’ measures of labour markets are firm, signs of vulnerability are emerging under the surface. These, combined with the impact of aggressive interest rate hikes over the past year, suggest labour demand is softening.
Here are five signals that labour markets aren’t as solid as they seem:
1. The scramble to hire staff is losing momentum
The U.S. private sector job opening rate has been declining since March 2022. That hasn’t yet generated a lot of net job losses, because demand was so far above available supply in the early days of the pandemic recovery. Regardless, there were 1.6 job openings per unemployed worker as of March, down from more than two per employed worker a year earlier.
2. Layoffs are edging higher
Though still low, weekly claims for state jobless benefits are also on the upswing. U.S. jobless claims—which have historically increased ~30% from their lowest point ahead of recessions— are already up more than 25% from late last year. And this happened in less than seven months (‘normal’ would be closer to a year). The share of eligible workers receiving unemployment insurance is also still very low but is up about half a percentage point from summer 2022.
3. Fewer workers are testing their luck in the job market
The share of workers quitting their jobs has been declining. Workers quit less often when job markets are softening and finding new work becomes less certain. And over the last two and a half decades, the economy-wide quit rate has only substantially declined during recessions. Wage increases from job switches are typically larger than within-job pay increases, so wage growth has also slowed.
4. “Temporary help services” employment has rolled over in the U.S.
Employment at temporary help agencies typically leads the labour market cycle. These are among the first jobs to be added during an upswing (it’s cheaper and less risky for businesses to hire more from temp agencies when demand is first rising) and they’re also the easiest jobs to cut when demand starts to slow. Temporary help services jobs have already declined in five of the last six months and are down over 5% from peak levels last year.
5. Job openings are also slumping in Canada
The number of job openings in Canada has also been slipping—both in Statistics Canada data and on the job search site Indeed.com. The unemployment rate is still exceptionally low at 5.0% as of April (just off the record 4.9% lows from summer 2022.) But businesses reported a sharp easing in the intensity of labour shortages in Q1. And wage growth expectations have been edging lower.
Nathan Janzen is an Assistant Chief Economist, leading the macroeconomic analysis group. His focus is on analysis and forecasting macroeconomic developments in Canada and the United States.
Carrie Freestone is an Economist with RBC and a member of the macroeconomic analysis group. She is responsible for examining key economic indicators including consumer spending, labour markets, GDP, and inflation.
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