Hottest US job market in decades slowly cools

One of the hottest US jobs markets in decades has begun to cool as the gap between the labor supply and demand for workers has shrunk to its lowest level in nearly three years.

The gap between the number of job openings and Americans looking for work was at less than 1.57 million in April, the lowest level since June 2021 and well below the peak of nearly 6.19 million in March 2022, according to the latest US Bureau of Labor Statistics data. The rates of workers quitting and businesses hiring have also slowed from pandemic-era highs.

While these signs of a pullback can often signal a looming recession or precede an even greater slowdown in the domestic job markets, economists believe the latest data better shows that the Federal Reserve's efforts to curb inflation through higher borrowing costs have firmly taken root.

"We're seeing continued normalization in the labor market after the dislocations from the pandemic and the recovery," said Augustine Faucher, chief economist of The PNC Financial Services Group. "Although the hiring rate has fallen, it's back to where it was prior to the pandemic, when the labor market was solid and stable."

Openings fall as joblessness rises

The number of US job openings fell below 8.06 million in April, down more than 4.12 million from the recent peak of monthly job openings in March 2022 and the lowest level since February 2021, the US Bureau of Labor Statistics reported June 4.

Meanwhile, the number of unemployed Americans was at 6.49 million in April, the highest number since January 2022.

"It is not a great time to be looking for a job, but are things getting worse? I'm not so sure," said Guy Berger, director of economic research at the Burning Glass Institute, a labor market think tank. "I don't look at this data and think 'Wow, things are on the precipice of getting a lot worse.'"

Demand for labor remains "sturdy" and the labor market will likely remain strong although less strong than the one that emerged from the pandemic, Faucher with PNC said.

Still, the slowdown in job openings, which was well below the consensus expectations of economists, appears to be sizable, said James Knightley, chief international economist with ING.

As employers now hire less, the rate of workers quitting, at 3% two years ago, has held at 2.2% since November, government data shows.

Businesses are no longer recruiting as aggressively with higher pay to fill millions of open positions and workers are no longer quitting at high rates to take new jobs with higher pay, Knightley said.

"This points to a 'normalization' of the jobs market," Knightley said. "It is also an important lead indicator for wage growth."

Current wage growth is now at levels historically consistent with employment costs rising at a little over 3% year over year, broadly in line with the Fed's 2% inflation target, Knightley said.

Slowing signs

The slowdown in the labor market comes amid other signs of a slowdown in the broader economy.

The Institute for Supply Management's manufacturing purchasing managers index for May was below 50 for the second straight month, a level that indicates the sector is in contraction, the group reported June 3.

In addition, the Federal Reserve Bank of Atlanta on June 3 forecast GDP to fall to 1.8% in the second quarter of this year. The Atlanta Fed estimated GDP growth for the quarter at 2.7% less than a week earlier.

US economic growth is slowing because of the ongoing tightening in monetary policy and constraints from the strong labor market, Faucher with PNC said.

"Growth is still solid and is moving from above the economy's long-term potential to closer to that potential," Faucher said. "This is good news from an inflation standpoint; slower growth should allow for a bit more slack in the job market, reducing inflationary wage pressures."