With job vacancies and unemployment approaching an equilibrium, the labor market will enter a period of neutrality in which activity is no longer tight nor prone to headwinds from inflation. The real risk arises from passing this period of neutrality through a flattening Beveridge Curve, where unemployment increases faster than further deceleration in vacancies.
Jobs Week has come around once again, and data will be essential for measuring the cadence of cooling in the labor market. Current trends suggest an elevated pace beyond policymakers’ expectations or market projections. Over the last five months, the unemployment rate has grown by 1% compared to just 0.5% over the past year, whereas job openings and hires have declined by 2.7% and 3%, respectively, compared to just 1% over the past year. Despite an elevated cadence of cooling, labor market activity remains at healthy levels from which to recover once economic conditions improve. This is best illustrated using the Beveridge Curve, which compares the job vacancy rate to the unemployment. The ratio of job vacancies to unemployed individuals has diminished from two jobs in March 2022, the peak of the Great Resignation, to 1.1 jobs in July of 2024.
With job vacancies and unemployment approaching an equilibrium, the labor market will enter a period of neutrality in which activity is no longer tight nor prone to headwinds from inflation. The real risk arises from passing this period of neutrality through a flattening Beveridge Curve, where unemployment increases faster than further deceleration in vacancies. During the height of the Great Resignation, when the ratio of job vacancies to unemployed individuals was two, the Federal Reserve only raised interest rates by 25 basis points, and then enacted more aggressive 75-basis-point hikes later. Depending on the cadence of cooling, and the risk of moving past the period of neutrality before the first hikes take effect, the Fed may opt for another 50-basis-point reduction in interest rates at their November meeting, since front-loading rate cuts could improve future expectations for labor costs and limit unnecessary scarring.
Recent data suggest that job seekers may be returning to the market even as they harbor concerns about their job prospects and their finances, putting employers in a stronger position when finding and negotiating with candidates.
Despite recent data from the New York Federal Reserve that job searching is increasing, job seeker confidence in their prospects has not increased with it. In fact, the latest ZipRecruiter Job Seeker Confidence Index, a quarterly survey capturing job seeker optimism, shows that the measure has declined to 90.2 in Q3 2024, down from 100 in Q1 2022, which was the initial reading for the index. Investigating specific questions from the survey yields further insights on the job seeker landscape in Q3 2024.
One driver of falling confidence is the perception of the number of jobs available. The share of job seekers who are not confident that there are plenty of jobs available has grown steadily since Q1 2022 to 38% in Q3 2024, while the share completely confident has ebbed to 18%. Related to this, the share of job seekers who say their search is going poorly has risen from 31% to 43%, while the share saying it is going well has fallen from 35% to 13%.
With seekers sensing dimmer job prospects, financial concerns loom. Nearly two-thirds of job seekers feel financial pressure to accept the first job offer they get, as the share of job seekers experiencing financial difficulties outweighs the share feeling financially comfortable by a margin of two to one (45% versus 20%). Since the period in late 2021 and early 2022 when workers were leaving jobs at a record pace, job searching and hiring activity have both cooled. However, recent data suggest that job seekers may be returning to the market even as they harbor concerns about their job prospects and their finances, putting employers in a stronger position when finding and negotiating with candidates.
