A few years ago, workers were in a state of euphoria as the job market was robust and historically strong by many measures.
Despite the Federal Reserve’s efforts to control high inflation with an aggressive interest rate hike, the labor market has gradually slowed down. Workers are now finding it more challenging to secure employment, and though still stable, the labor market could face issues if this trend continues, according to economists.
“Based on the data, it’s understandable why job seekers are feeling gloomy,” said Julia Pollak, the chief economist at ZipRecruiter. “The labor market is indeed weakening, and job seekers are taking notice.”
The demand for workers surged in 2021 with the rollout of Covid-19 vaccines and the broad reopening of the U.S. economy.
Record-high job openings provided workers with numerous choices, and businesses raised wages rapidly to attract talent. By January 2023, the unemployment rate reached 3.4%, its lowest level since 1969.
Workers could easily switch to better-paying jobs during this period, known as the “great resignation” or “great reshuffling,” with more than 50 million people quitting their jobs in 2022, setting a record.
Despite a significant decrease in inflation, a “vibecession,” a sense of economic pessimism, persisted among many Americans even though the overall economy remained relatively strong.
While many job metrics have reverted to levels similar to those before the pandemic, the rate of hiring by employers is the lowest since 2017.
“The excessive trends in the U.S. job market post-pandemic have largely subsided,” noted Preston Caldwell, a senior U.S. economist at Morningstar Research Services.
The unemployment rate rose to 4.1% as of June 2024. Although this rate indicates a strong labor market, its consistent increase is concerning, according to Nick Bunker, the economic research director for North America at Indeed Hiring Lab.
The broad adjustment in the labor market has been mostly welcomed as it returns to a pre-pandemic equilibrium, Bunker mentioned. However, any further cooling could pose risks, he added.
“Currently, the labor market remains strong, but the future is uncertain,” Bunker stated after analyzing the latest monthly jobs data from the federal government. “The current labor market conditions are favorable, but continued trends could lead to challenging circumstances.”
Worker morale may improve if the Federal Reserve decides to reduce interest rates, which could benefit households by lowering borrowing costs, Pollak suggested.
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