The US labor market remains incredibly resilient, as continued strong job growth in the last few months has illustrated. According to the most recent employment data, the national unemployment rate has fallen to 4.1%. Despite this positive economic environment, a number of structural weaknesses remain that threaten future growth. Despite the headlines crowing of strong job growth, other signs point to a more complicated story lurking just below the surface.
In June, the US economy created jobs much faster than expected for the third month in a row. It was the government sector that drove this rosy trend. In fact, it was driving almost 50% of the non-farm payroll (NFP) growth. Despite these positive improvements, fears continue to persist about the widespread health of the labor market.
The participation rate has just dipped down, from 62.4% to 62.2%. Second, this decline casts doubt on people’s desire to get back to work. Beyond that, it points to a more fundamental problem. The constraints on labor supply are what’s keeping people from advancing. Continuing claims to unemployment insurance have been rising in recent weeks, still low by historical standards. Such an increase would be a positive indication that even though growth has returned, many workers are still having difficulty finding consistent work.
US companies seem to be cutting back hiring too as economic worries hang over the country. The recent conditions in the labor market are still strong, however, many leading indicators suggest coming decelerations. Take something like the average workweek which has gotten shorter, an indication that businesses might be cutting hours in the face of persistent economic headwinds. These types of changes might be one step employers can take now to get ahead of the curve and beyond the coming storm.
Additionally, slowing immigration has become one of the primary forces limiting labor supply growth in the US. The anticipated decrease in the workforce would significantly exacerbate already tough labor market conditions. This is particularly dire in industries that historically tend to rely on immigrant workers.
US job openings have soared to 7.8 million, much higher than economists predicted. What’s more, this major bumpup is happening even as the economy shows increasing strain. The May Job Openings and Labor Turnover Survey (JOLTs) report made it clear, confirming this trend. It also revealed a historic demand for workers, despite a radically deepening labor supply.