New economic data released this week paints a picture of a US labor market that is continuing to cool, with hiring slowing down, but layoffs remaining remarkably low.
This unique combination of factors suggests a period of relative stability in the job market, although the longer-term trajectory remains uncertain.
Hiring slows, jobless claims drop
According to ADP data released on Wednesday, private payrolls increased by 122,000 in December, a decrease from the 144,000 additions observed in November.
Meanwhile, the Department of Labor reported 201,000 new claims for unemployment benefits in the week ending January 4, a drop of 10,000 from the previous week and below economists’ expectations of 215,000.
These figures suggest a continued slowing of the pace of job growth, while also demonstrating a reluctance from employers to lay off existing staff.
‘Low layoffs, low quits’ define current stability
“That’s precisely why [we saw] stability in the 2024 labor market,” ADP chief economist Nela Richardson told Yahoo Finance.
You had low layoffs, low quits.
The combination of low layoffs, which shows employer confidence, and low quits, a sign of employees’ lack of confidence in finding new opportunities, have created a state of equilibrium in the labor market.
Signs of a “no hire, no fire” economy
While job openings increased overall in November, reaching their highest level since May 2023, there are other signs of a “no hire, no fire” status in the labor market.
In the November Job Openings and Labor Turnover Survey (JOLTS) report, released on Tuesday, the hiring rate fell to 3.3% from the 3.4% seen in October.
Meanwhile, the quits rate, an indicator of worker confidence, fell to 1.9% from 2.1% in October.
Both metrics are now lower than they were before the onset of the pandemic in March 2020.
“Labor markets keep cooling,” wrote Renaissance Macro head of economics Neil Dutta in a note to clients on Wednesday.
As we noted yesterday, there is more signal from the quits rate than openings.
Cooling affecting different sectors
ADP’s Richardson noted that this cooling is playing out at the margins.
White-collar workers are taking longer to find jobs, while an increasing number of hourly workers are seeing their hours cut, resulting in annual wages that are not outpacing inflation.
However, Richardson cautioned against complacency, stating:
I don’t think we say stable. Economies are known to change very quickly.
She also pointed to three consecutive monthly declines in manufacturing jobs, a sector that could be reinvigorated by potential interest rate cuts.
The Fed’s perspective and future outlook
The Federal Reserve remains focused on this evolving dynamic.
Fed Chair Jerome Powell said on December 18 that the labor market is “looser than pre-pandemic” while highlighting that, for now, the labor market is cooling in a “gradual and orderly way.”
Powell’s statement suggests that the Fed is closely watching the data for signs that inflation is easing.
“We don’t think we need further cooling in the labor market to get inflation down to 2%,” Powell said, indicating the Fed’s current assessment of the situation.
December jobs report awaited
The broader update on the state of the US jobs market is scheduled for Friday with the release of the December jobs report.
Consensus expectations are that the US economy added 163,000 jobs in December, a decrease from the 227,000 additions in November, with the unemployment rate projected to remain steady at 4.2%.
This report will be crucial in providing a more comprehensive view of the current state of the U.S. job market.
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