A Weakening U.S. Job Market Raises Concerns

Slower Job Growth and Increasing Unemployment Benefit Claims

The robust U.S. job market that has persisted for some time may finally be showing signs of weakness. Recent data reveals a decline in job creation, prompting concerns about the availability of employment opportunities.

According to the October employment report, the number of newly created jobs stood at just 150,000, with less than 100,000 coming from the private sector. What's more, the unemployment rate has edged up to 3.9% - its highest level in 21 months.

Supporting this view, the number of people collecting unemployment benefits is on the rise, indicating potential challenges in finding employment. In late October, continuing jobless claims reached a seven-month high of 1.83 million. These claims represent individuals who are currently unemployed and receiving benefit checks.

Nancy Vanden Houten, lead U.S. economist at Oxford Economics, suggests that the increase in continuing claims implies that unemployed individuals are encountering greater difficulty in securing new jobs. This aligns with a slower pace of hiring, as indicated by recent trends.

It's important to note that the rise in continuing claims has been gradual and relatively modest. In fact, current numbers remain lower than those observed at the onset of the pandemic in March 2020.

Economists point out that the recent increase in continuing claims may be somewhat exaggerated due to seasonal adjustments made by the government. The actual number of people receiving benefits is significantly lower, and the majority of the increase has occurred only within the past month and a half.

Indicators of Stress in the Job Market

Beyond the uptick in continuing claims, there are other signals pointing to potential stress within the job market.

One such indicator is the exhaustion rate, which measures the percentage of individuals who exhaust all their jobless benefits. This rate has risen to 35%, up from just under 30% at the end of 2022.

Additionally, the duration of time individuals receive benefits before securing a new job has slightly increased since the beginning of the year.

While the U.S. job market has maintained its strength for an extended period, recent trends raise concerns about potential challenges on the horizon. Employers and job seekers alike should pay attention to these developments, as they may indicate shifts in hiring conditions and the overall economic landscape.

Labor Market Still Shows Signs of Slack

The latest claims data provide further evidence of a modest margin of slack open in the labor market. According to Bill Adams, chief economist of Comerica Bank in Dallas, this data suggests that there is still room for improvement in the labor market.

The Federal Reserve is aiming for a softening of the labor market to alleviate the upward pressure on wages, which is contributing to high U.S. inflation. Senior Fed officials are already seeing signs of progress in this regard.

There are reports stating that firms find it easier to fill open positions compared to a year ago, and wage growth is not as rapid as before. Kathleen O'Neill Paese, interim president of the St. Louis Federal Reserve, confirms these reports and adds that there are indications that inflation pressures may be easing.

However, despite these developments, the U.S. labor market remains robust.

Although the current 3.9% unemployment rate is historically low, it is important to note that even a 150,000 increase in new jobs in October would have been considered a positive report before the pandemic.

The rise in wages demonstrates the increasing bargaining power of labor, exemplified by the United Auto Workers strike against the Big Three U.S. carmakers. Average hourly earnings have seen a notable increase of 4.1% in the past year.

While annual wage growth has cooled down from the peak of 5.9% during the pandemic, worker pay continues to rise significantly faster compared to pre-pandemic levels.

However, if the labor market is truly cooling off, wage growth should continue to slow down, and other indicators of slack will inevitably emerge.

U.S. economist Thomas Simons of Jefferies argues that there are abundant signs pointing to a slowdown in the labor market as the economic expansion has been going on for quite a while.