The US labor market has clearly cooled. What is less clear is whether that cooling signals meaningful weakness or simply a more cautious approach from both employers and workers.
Job openings have come down from their post-pandemic highs, and workers are quitting less frequently. At the same time, layoffs have remained relatively contained in many parts of the economy. That combination matters.
One of the more interesting signals is the decline in quitting. The annual US Total Private Quit Level is currently about 10% below its 10-year average, with even larger gaps in information services, professional and business services, and manufacturing.
Workers typically quit when they are confident another opportunity is available. Fewer workers quitting could therefore indicate that employees perceive fewer attractive alternatives. It could also just mean that the unusually active job switching behavior of recent years is continuing to normalize.
Either way, businesses may be benefiting from something that was difficult to achieve just a few years ago: retention.
Employers appear to be displaying similar caution.
Rather than aggressively expanding payrolls, many businesses are slowing hiring while retaining the employees they already have. That distinction can produce a labor market that feels difficult for job seekers without producing the widespread layoffs associated with a downturn in the economy. While the US Total Number of Private Layoffs and Discharges have climbed from the mid-2022 record low, they have settled around the pre-COVID “normal.”
The current environment could give businesses more flexibility as economic conditions change. Companies that have retained experienced workers may be better positioned to respond to improving demand without immediately competing for new hires.
That could also put productivity in greater focus. If output begins to greatly outpace headcount, businesses will be well positioned to get more out of their existing workforce. One metric we are keeping an eye on is the US Nonfarm Labor Force Productivity Index amid recent investments in technology, automation, and process improvements, all of which could have a positive impact on capacity.