Economist Insights Quarterly

What do the latest economic indicators tell us about the labor market, and why do they matter? Economist Insights is a new quarterly series that breaks down complex economic data into practical insights for state workforce agencies. 

Labor Market Summary

The labor market is showing signs of stabilizing after a rough start to the year. Each month has felt like a rollercoaster with economic indicators bouncing up and down, but the general trend recently is, at the very least, not entirely negative. However, prices are still high and wages cannot keep pace, which continues to drag down the purchasing power of earnings.

In a world of new and uncertain norms for breakeven employment growth, small statistical revisions can mean the difference between monthly net job gain and net job loss. The past few months averaged around 50k net job gain, but with lots of variation from month to month.

• The fact that the unemployment rate (currently around 4.2%) has not dramatically risen recently indicates that these employment growth numbers might be okay to support our workforce in the short term. In other words, fewer employed workers are needed to maintain the same unemployment rate since there are fewer workers in general.
• The bigger picture question is how the diminishing labor force and AI will interplay in the longer term to support our broader labor needs, particularly in healthcare as our population ages. There are numerous predictions. We will see how it plays out.
• Real (adjusted for inflation) average hourly earnings have been barely holding on recently due to a combination of limited nominal (not adjusted for inflation) wage growth and larger increases in prices. The past few months have seen decreases in real average hourly earnings since the year before. Read more about real earnings in the Closer Look.
• The Federal Reserve raised interest rates in September, which generally helps to bring inflation down. Some are pointing out that the high inflation we’re currently experiencing is driven by supply shocks (prices going up as a result of shortages and increased production costs). Raising interest rates, however, works through demand mechanisms, such as discouraging investment. So, higher interest rates are not an ideal fix for this type of inflation. However, the Federal Reserve only has so many levers it can pull.

In terms of the labor market, while we are doing okay right now at a high level, we are definitely not flourishing and could still be susceptible to pressures from higher interest rates, particularly if more rate hikes are in the future. It will be important to keep an eye on openings and hiring in the coming months.

• For now, job openings are looking okay with a possible upwards trend starting after a period of not much change. After a year sitting at a balanced labor market, the openings-to-unemployed person ratio or labor market tightness is also increasing. 
• Hiring is bouncing around a lot this year but with no obvious trend either up or down.

For more detailed state-level data, please see the state’s LMI website.

What Wages Will Buy

Earlier this year, we saw a sharp plunge in the purchasing power of earnings, something we have not seen since COVID. Where did that come from? What does that mean for workers? Where do we go from here? Read the Closer Look. 

Additional Resources

• Want to stay updated on new research relating to programs, policy, and tracking of the labor market? Check out some research highlights here. 
• See more about job opening trends in the NLx Research Hub’s latest quarterly Cup of JOE blog post and subscribe to get notifications when new blog posts come out.