Fewer Work opportunities as Job Cuts Rise

Wall Street Journal reported that the U.S. labor market showed signs of cooling in March as job openings dropped to their lowest level in almost two years and layoffs rose sharply. This comes after the Federal Reserve started lifting interest rates a year ago to combat inflation. The Labor Department reported on Tuesday that layoffs increased to 1.8 million in March, up from 1.6 million in February, with job losses mostly coming from the construction, leisure and hospitality, and healthcare industries. These sectors had previously driven job growth while tech, finance, and other white-collar industries cooled off.

Furthermore, there were 9.6 million job openings in March, a decrease from the revised 10 million openings reported in February. This is the lowest number of job openings recorded since April 2021 and is down from the record 12 million openings seen in March last year. However, the number of job openings is still higher than pre-pandemic levels and exceeds the 5.8 million unemployed people looking for work in March.

Luke Tilley, Chief Economist at Wilmington Trust Investment Advisors, noted that the labor market appears to be normalizing, and the big question is whether it will stop at ‘normal’ or contract further. Layoffs are approaching pre-pandemic levels as companies announce high-profile job cuts, such as Facebook parent Meta Platforms, Google parent Alphabet, and Microsoft.

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The March openings and layoffs report are one of the last significant releases before the Federal Reserve’s monetary policy committee meeting on May 2-3. Officials are likely to increase interest rates again this week while debating whether this will be sufficient to pause the fastest rate-raising cycle in 40 years. The benchmark federal funds rate is currently between 4.75% and 5%. The Fed has raised rates aggressively over the past year to slow the labor market and overall economy and reduce high inflation.

Federal Reserve Chair Jerome Powell has emphasized the imbalance between job openings and available workers as a driver of rapid price increases, as strong labor demand can push up wages and flow through to higher prices.

Although employers added 236,000 jobs in March, the smallest monthly gain in more than two years, this is still strong by historical standards. The unemployment rate was 3.5%, near a 53-year low. The Labor Department will release its April employment report on Friday.

While job losses increased in some sectors, layoffs fell in retail and warehousing industries in March. Additionally, manufacturing layoffs increased slightly. According to Alyssa Chumbley, owner of an Express Employment Professionals recruitment business, job openings have fallen significantly in northern Indiana over the past six months. Employers who had previously been looking for 10 to 15 workers are now seeking only one or two. Chumbley’s company focuses on white-collar companies in Chicago and steel-manufacturing businesses in northern Indiana.

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Ms. Chumbley noted that the hiring slowdown reflects the overall cooling of demand in the economy. However, some positions continue to be difficult to fill, such as skilled manufacturing jobs on evening and night shifts at factories. Maintenance technicians, in particular, are calling the shots as the supply of workers is small, and they are jumping ship whenever they can to get first-shift positions. According to Ms. Chumbley, offering $5 or $10 more per hour is no longer enough; instead, workers are seeking flexibility and a favorable schedule.

Overall, the U.S. labor market appears to be cooling, with job openings at their lowest levels in two years and layoffs increasing. The Federal Reserve is likely to raise interest rates again this week to combat inflation, which remains elevated. The economy is also showing signs of slowing, with U.S. economic growth cooling in the first quarter, and wage growth and inflation remaining high.