US hiring, quitting slow as companies wait for lower rates

US companies have slowed hiring to levels last seen in the early days of the COVID-19 pandemic and workers are staying put in their current jobs, a labor market trend that may not ease until interest rate cuts take root.

The US hiring rate, a measure of the number of monthly hires as a percentage of total employment, fell to 3.3% in August, the lowest rate since April 2020 when it was 3.1% and much of the global economy was shut down in response to COVID-19, according to the latest Bureau of Labor Statistics data. Outside of the pandemic, the hiring rate has not been this low since October 2013.

While there may be no clear signs of an impending recession, the hiring rate will likely continue to fall until rate cuts from the Federal Reserve noticeably improve financial conditions for companies.

"This is a really tough job market for job seekers," Guy Berger, director of economic research at the Burning Glass Institute, said in an interview.

The Fed in September cut rates by 50 basis points and is expected to cut by at least another 50 basis points before the end of this year. Lower rates will eventually improve financial conditions for many companies, particularly smaller companies that tend to rely on borrowing more, and ultimately boost employer confidence, triggering a potential new wave of hiring, Berger said.

Yet it remains unclear just how much rates need to fall and how long they need to stay lower before hiring picks up again.

"The Fed will proceed cautiously by trial and error," Berger said. "We'll find out next year, but I don't think the 50 basis points so far, with no additional easing, will be sufficient to stabilize hiring."

As hiring has declined, so has quitting. The US quits rate fell to 1.9% in August, the lowest since April 2020 when it was 1.5%, and outside of the pandemic, the lowest since July 2015.

The fall in quits could be a sign that worker confidence to find another job could be weakening and may lead to diminishing leverage for employees seeking higher wages, Thomas Simons, a senior economist at Jefferies, wrote in an Oct. 1 note.

While the quit rate is low, the layoff rate also remains muted, a sign that workers do not fear employment options but may be satisfied in current positions, Simons wrote.

"Workers are not staying put because they are concerned about getting another job, rather they are staying put because an excessive amount of them just changed jobs within the last three years," Simons wrote. "While the data support the fact that workers who are willing to quit their job have better prospects for bigger wage gains than their 'job-staying' counterparts, there are non-economic costs associated with switching jobs that reduce the appeal of quitting."

Still, sluggish hiring is a sign that companies are hesitant to expand and view the economy as slowing, Daniel Zhao, lead economist and senior manager on Glassdoor's Economic Research team, said in an interview. The slowdown in quitting is a reflection of a workforce prioritizing job security over the potential for better pay and career growth, Zhao said.

"On the bright side, layoffs remain low by historical standards as many employers stay in a holding pattern rather than cut their workforces aggressively," Zhao said.

There has been an average of 1.62 million layoffs and discharges each month through the first eight months of 2024, which is down about 51,000 from the average of the first eight months of 2023. The monthly pace of layoffs this year is down about 168,000 from where it was in 2019.