Job market looks stable

There were 8.1 million job openings in the United States at the end of November, according to the latest Job Openings and Labor Turnover Survey (JOLTS). That was the highest number in six months. The total remains about one million above pre-pandemic levels.

Real-time data from Indeed Hiring Lab show that job postings edged higher in November after falling in October and then flattened out again in December. Both the JOLTS and Indeed data point to a relatively stable and resilient labor market.

Labor demand appears to be rising for certain white-collar industries that had been hit hard by layoffs and low hiring rates after the post-pandemic hiring boom. Job openings surged month-over-month in professional and business services (+273,000) and finance and insurance (+105,000). Professional and business services recorded the highest number of job openings in almost two years. Companies are re-organizing their workforces to capitalize on GenAI.

The outlook is mixed for the three industries that powered employment gains over the past 18 months. Openings increased in healthcare and social assistance (+44,000) and state and local government (+18,000); they declined in leisure and hospitality (-83,000). That could point to weaker job growth in these industries in early 2025; it raises the question of where future job gains will come from.

The ratio of job openings to unemployed job seekers, a measure of balance in the labor market tracked closely by Federal Reserve officials, remained flat at 1.1 for the fifth straight month. If you want to look closely, the ratio has edged up just slightly during the past three months.

A warning sign for the economy: The hiring rate ticked down to 3.3%. That was well below the pre-pandemic average of 3.9%. In the early 2010s, a 3.3% hiring rate overlapped with an unemployment rate between 7 and 9%. Over time, a low hiring rate can result in increased unemployment.

Hiring rates remained below the pre-pandemic benchmark in professional and business services (4.1% vs. 5.4%) and finance and insurance (1.6% vs. 2.2%). The manufacturing sector continued to be weak, with less hiring and fewer job openings in November.

For now, the low hiring rate has been offset by historically low layoffs. The layoff rate remained flat at 1.1% for the third straight month. In the early 2010s, a layoff rate of between 1.3 to 1.4% was more common. Layoffs fell for the second month in a row in construction to the lowest level since May 2023.

Quits fell in nearly all industries. The quits rate dropped to 1.9%. Apart from the immediate post-pandemic period, that ties the lowest rate in more than nine years and points to future weakness in wage growth; that's according to the payroll data. The real test will come with the employment cost index, which is a more accurate measure of wage, salary and benefits weighted by sector.

The Labor Leverage Ratio, a proxy for worker bargaining power, ticked down in November. However, data from ADP show that the wage premium for switching jobs rose to 7.2% in November after falling in September and October. That was a lower premium than the past few years. The lower quits rate shows that workers are less optimistic about getting another job; that makes sense given the low hiring rate and increases in long-term unemployment. It is taking longer, especially for white-collar workers, to replace a job once they have lost one.

The risk of a hard landing, with a significantly weaker labor market, is still low but rising.

Bottom Line

The November JOLTS data showed a labor market that was resilient but containing warning signs of weakness. If you have a job, you are less likely to be laid off. If you do not have a job, it is very difficult to find a new one. As a result, many workers are staying in place. That stability is something that the ADP hiring lab has noticed as well. The Federal Reserve is caught in a balancing act between maintaining the resilient labor market, while juggling risks that inflation could accelerate in response to policy shifts in 2025. Our baseline forecast is now for only two rate cuts by the Fed in 2025, which means that monetary policy remains in restrictive territory for much of the year. The risk of a hard landing, with a significantly weaker labor market, is still low but rising.?