The job market shows signs of ‘normalizing,’ labor economist says — here’s what that means for workers

Job openings and layoffs dropped slightly for another consecutive month in July, according to government data released Tuesday. That slowdown is a sign the labor market is getting back to pre-pandemic patterns, economists say.

The number of job openings edged down to 8.8 million in July, dropping from 9.58 million in June, reported the U.S. Bureau of Labor Statistics in its monthly Job Openings and Labor Turnover Survey. Quits also declined 3.5 million, while layoffs and discharges slightly fell to 1.6 million.

While the drop in job openings was significant, the reduction is due to little turnover, said Elise Gould, a senior economist at The Economic Policy Institute. The elevated amount of job openings observed in the past few years was not necessarily signaling an overheated job market, but rather a higher rate of “churn” as people quit and found new jobs at a faster rate, she said.

However, as that churn declines, so will the number of job openings.

“It’s not because things are necessarily contracting, it’s just normalizing somewhat,” she said of the labor market.

More from Personal Finance:
Don’t keep job loss a secret — here’s how to talk about it as you look for a job
You can use A.I. to land a job, but ‘it can backfire,’ career expert says
How to tell your company has layoffs planned

The number of quits increased 18,000 for state and local government education, JOLTS data shows.

However, it’s typical to see more quits around this time. July 1 is when the fiscal year typically starts for state and local governments, so contracts change on this date, said José Fernández, an economist and associate professor at the University of Louisville.

While education is also highly cyclical, data has yet to show if this jump in quits was a seasonal effect or a long-term trend, Gould said.

Meanwhile, the number of quits declined in accommodation and food services, down 166,000, and arts, entertainment and recreation, down 17,000.

Positions in these lower-wage sectors tend to have the highest turnover because workers can lose their jobs more easily, Gould said. Quit rates coming down in these sectors show that workers may not see other opportunities to pursue.

“Wages haven’t been rising at the same rate in those lower-wage professions as they had been earlier on in the pandemic,” Gould said.

Workers are staying put, she added.

The labor market has shown consecutive declines in the past few months. Here are a few indicators economists are monitoring ahead of Friday’s jobs report.

The Black unemployment rate serves as an indicator for signs of trouble, since recessionary times often hurt historically disadvantaged groups first, Gould said. 

It will also be important to see job growth for prime age workers continue to rise and nominal wage growth to continue its deceleration. The Federal Reserve pays attention to wage growth to make policy decisions on interest rates.

“Somehow we’ve had a soft landing so far, the labor market has been incredibly resilient to the Federal Reserve’s actions against raising interest rates so quickly and so high — I hope that we continue to see that,” Gould said. 

“But I also hope that we let the labor market feel the full effects of the interest rate hikes that we’ve already had before they raise them again,” she added.