August 29, 2023
This Friday, the Bureau of Labor Statistics (BLS) will release the August jobs report. Daylight is waning for the labor market’s seemingly endless summer, but summer is not over yet. Early signals point to a cautious, tentative reversal in hiring – which won’t necessarily be visible in payroll data until the fall. This month’s report is likely to be particularly noisy due to one-off disruptions in the labor market, so we should be cautious not to overinterpret the most recent data points.
Here are three trends we'll be watching for in the July jobs report:
1. Jobs growth likely slowed further. Payroll gains appear to have stabilized over the summer with employers adding 187,000 jobs in July following a gain of 185,000 jobs in June. August data will reflect new labor market headwinds – including the impacts of the screen actors and writers strike and a major trucking industry bankruptcy (historically major strikes have had a large impact on payroll data) – and Friday’s jobs report is likely to show that job gains slowed to 145,000 in August as striking workers were dropped from payrolls.
2. Unemployment rate rising. The unemployment rate has been effectively flat for the past year, but it likely increased in August to 3.8 percent – still very low by historical standards but higher than it has been since early 2022. Given the increase in interest rates over the past year, simple economic models suggest that the unemployment rate should have increased by 0.5-0.7 percentage points instead of the observed 0.0 percentage point change.
3. Wage growth likely to slow to 4.2 percent. Year-over-year growth in average hourly earnings is likely to decelerate modestly from 4.4 percent in June to 4.2 percent in July – which would be the slowest pace since June 2021. Earnings growth has been effectively stable for five consecutive months, but the August wage data is particularly vulnerable to distortions associated with striking and recently laid-off unionized workers who tend to be more highly paid than non-unionized peers.
Each decision to voluntarily leave a job is due to a combination of push and pull forces. The pull forces are cyclical, but the push forces are evergreen.
With many companies taking a more cautious approach to hiring in anticipation of a slower economy, and fewer companies in hypergrowth mode due to an elevated cost of risk (interest rates), it’s natural that the pull forces have sharply diminished in recent months. But the push forces are still there; in some dimensions, it appears as if they are increasing.
Tech industry jobs long distinguished themselves in Glassdoor reviews as exceptional outliers for both Compensation & Benefits and for Work-Life Balance. Over the past year, that tech exceptionality has disappeared relative to key talent competitors in Financial Services, and in Management & Consulting.
After a precipitous decline in tech industry ratings since late last year, there is now ratings parity across these three sectors – meaning that job satisfaction and work conditions are now similar across these industries that often compete for the same types of talent. The average rating for Compensation & Benefits in tech is now lower than in Financial Services.
Overall, these data suggest that moving forward tech may no longer be the talent safe haven it once was, and that finance and consulting firms are likely to be more competitive on the talent market: A new normal for knowledge workers as the labor market inches toward stability.