The economists say that this slowdown is a sign the labor market is returning to its pre-pandemic patterns. The U.S. Bureau of Labor Statistics reported that the number of job openings fell to 8.8 millions in July from 9.58 in June. Quits also declined 3.5 million, while layoffs and discharges slightly fell to 1.6 million.
While the drop in job openings was significant, the reduction is due to little turnover, said Elise Gould, a senior economist at The Economic Policy Institute. The elevated amount of job openings observed in the past few years was not necessarily signaling an overheated job market, but rather a higher rate of “churn” as people quit and found new jobs at a faster rate, she said.
However, as that churn declines, so will the number of job openings.
“It’s not because things are necessarily contracting, it’s just normalizing somewhat,” she said of the labor market.
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Where workers are still quitting at high rates
The number of quits increased 18,000 for state and local government education, JOLTS data shows.
However, it’s typical to see more quits around this time. July 1 is when the fiscal year typically starts for state and local governments, so contracts change on this date, said Jose Fernandez, an economist and associate professor at the University of Louisville.
While education is also highly cyclical, data has yet to show if this jump in quits was a seasonal effect or a long-term trend, Gould said.
Meanwhile, the number of quits declined in accommodation and food services, down 166,000, and arts, entertainment and recreation, down 17,000.
Positions in these lower-wage sectors tend to have the highest turnover because workers can lose their jobs more easily, Gould said. Quit rates coming down in these sectors show that workers may not see other opportunities to pursue.
“Wages haven’t been rising at the same rate in those lower-wage professions as they had been earlier on in the pandemic,” Gould said.
Workers are staying put, she added.
What to expect in Friday’s jobs report
The labor market has shown consecutive declines in the past few months. Here are some indicators that economists will be monitoring before Friday’s employment report. It will be crucial to see that the number of jobs for workers in prime age continues to grow and that nominal wage growth does not slow down. The Federal Reserve pays attention to wage growth to make policy decisions on interest rates.
“Somehow we’ve had a soft landing so far, the labor market has been incredibly resilient to the Federal Reserve’s actions against raising interest rates so quickly and so high — I hope that we continue to see that,” Gould said. She added:
“But I also hope we let the labor markets feel the full effect of the interest rates hikes we’ve had before raising them again.”