Indeed Economist: US Labor Market Reaches Inflection Point

The US labor market has reached a critical turning point, signaling the need for change after a period of rapid post-pandemic growth. In our latest RPOA Expert Panel webinar, Daniel Culbertson, a senior economist at Indeed's Hiring Lab, provided a comprehensive overview of the US labor market. He delved into the key trends shaping the hiring landscape, including the labor market slowdown, wage growth, remote work, and the economic outlook.

This blog post provides a summation of Culbertson's presentation, beginning with an overview of statistics and trends. Then exploring the contrary unemployment rate, the demand for workers, job posting trends, hiring rates, labor supply improvements, and wage growth. This comprehensive analysis aims to provide a deeper understanding of the complexities and dynamics within the US labor market.

The Current US Labor Market Situation

Culbertson started his presentation by emphasizing that the labor market has reached an inflection point, indicating a need for change as it has slowed down following a period of rapid growth post-pandemic.

As of this post, the Bureau of Labor Statistics (BLS) reported job gains 254,000 in September, with revised numbers for July and August showing increased job additions. These positive changes raised the month-over-month average of job additions from 100,000 to 186,000, aligning with Culbertson's observations.

Although the new monthly average exceeds the previous average, it falls short of the 2023 monthly average of 250,000 job additions. Nonetheless, the labor market achieved Culbertson's desired monthly average, surpassing 100,000 job additions. This shift signifies a positive step in the labor market, although it indicates a slower growth rate than in previous years.

The Contrary Unemployment Rate

Culbertson pointed out that the uptick in the unemployment rate raised the eyebrows of labor economists. At the time of his presentation on October 3, 2024, unemployment sat at 4.2 percent. He noted that while 4.2 percent is higher than in previous years, it's incredibly low as any rate below 5 percent is considered full employment. The U-6 unemployment rate currently stands at 7.7 percent, encompassing those who have stopped looking for work and part-time workers seeking full-time jobs. He said that this unemployment number increased a little, and economists worry about it rising further.  September’s unemployment rate came in lower at 4.1 percent. 

Demand For Workers Remains Healthy, Despite Slowdown

Looking through the lens of Indeed's job postings index, "the overall demand for workers remains healthy," Culbertson said, despite the slowdown.  

The Indeed job postings index shows the overall trend for all job postings on the Indeed site from anywhere inside the United States. Culbertson pointed out that the index's pre-pandemic baseline on February 1, 2020, was 100. As of September 27, 2024, the index remained 12 percent above that baseline, which indicates a healthy demand for workers. 

Job Posting Trends Show Healthy Demand and Corrections In The Labor Market 

To illustrate the healthy demand and corrections in the labor market, Culbertson emphasized that healthcare job postings have held up well. In contrast, tech and HR job postings saw significant corrections.

In the healthcare sector, nursing is a good proxy for the industry's stability, he said. During the pandemic, job postings for nurses increased and declined at a slower pace post-pandemic. Other healthcare job postings remained flat, indicating the strength of healthcare over other industries in the labor market.

"The number of job postings for software developers remains below the pre-pandemic level and has not yet recovered. The tech industry is now correcting itself by decreasing its hiring to adjust its workforce level," Culbertson said. 

Culbertson noted a surge in hiring HR professionals after the pandemic, but now fewer job postings than before the pandemic indicate a correction due to the slower hiring pace.

Slow Hiring Rates Amidst Labor Supply Improvements 

Culbertson next drew attention to slow hiring rates despite improved labor supply. He explained that the hiring rate represents actual hires and a share of total employment. He emphasized that the hiring rate is "where the rubber meets the road for Human Resources." 

Culbertson said that the current BLS data on the hiring rate shows that hiring has been slowing down steadily over the past two years. The current hiring rate sits where it was in the early 2010s when the labor market was healing from the global financial crisis. He observed that if this hiring rate continues to slide, we're probably getting closer to a possible recession.

Despite the hiring rate slowing down, Culbertson noted that the labor supply improved, particularly among workers aged 25 to 54, whose participation rate exceeded pre-pandemic levels. However, older workers have not fully recovered, possibly due to early retirements, while younger workers have faced setbacks due to prolonged schooling, childcare issues, and job instability.

Commenting on the current labor force participation numbers, Culbertson's colleague at Hiring Lab, Cory Stahle, wrote, "The rate of people working or looking for work remains high, with prime-age labor force participation at 83.8%—a near multidecade high. Any further cooling in job growth would be worrisome."

Culbertson noted that a more robust labor force due to higher retention benefits businesses. He mentioned that the resignation rate, which indicates the percentage of workers choosing to leave their jobs each month, has decreased and is now lower than pre-pandemic levels. This change from the "great resignation" to the "great stay" suggests workers' hesitation to leave their current jobs.

Wage Growth Normalizes

Culbertson next discussed the normalization of wage growth; by normalization, he meant an area of the labor market that has returned to pre-pandemic levels. He said that the Hiring Lab measures wage growth using information from job postings on the Indeed website, tracking the salary or wage details provided by employers over time to gauge wage growth.

He stated that wage growth peaked at 9 percent year over year post-pandemic but has since cooled to around 3.2 percent, returning to pre-pandemic levels. Some categories experienced a slowdown, while marketing saw higher-than-average wage growth. Overall, pay for roles has stabilized, and the annual increases aligned with expectations for a functioning labor market.
Remote Work Perseveres

Culbertson observed that remote work perseveres amidst return-to-office announcements. Remote job postings decreased slightly from the post-pandemic peak but remained much higher than pre-pandemic levels. Fewer tech job postings, which usually offer remote work, contributed to the decline. However, job seeker interest in remote roles remains high, with searches close to post-pandemic levels.

"There hasn't been much change in remote job postings for office jobs or white collar roles, aside from a slowdown in software development and accounting positions. There's been a slight increase in legal or insurance job postings, but most categories remain constant," he said.

Economic Outlook and Recession Possibilities

The economic outlook improved over the past year, with the Federal Reserve cutting interest rates to spur economic growth. Despite this, a high degree of uncertainty persists, with the possibility of a recession not wholly ruled out. Economists closely monitor Inflation and the labor market, as they could complicate the economic picture if they worsen. While the labor market slowed, a rebalancing occurred in the supply and demand for workers, with some higher-skilled roles still facing tight labor markets.

Recruiting Strategies and Industry Focus

As general advice to help recruiters navigate the current labor market, Culbertson emphasized the importance of pay and transparency, especially in a tight labor market. He mentioned that around 57 percent of job postings on Indeed include salary information. "Salary transparency attracts a wider talent pool and fair chance of hiring, and reconsidering restrictive practices like drug testing enhances the hiring process," he said.

He shared that recent Hiring Lab research shows a decrease in job postings requiring specific degrees or years of experience, with employers now focusing more on relevant knowledge and skill levels. "Remote work works well for a small portion of the labor market, and businesses should clearly define what it means for them. Offering flexibility for on-site roles can attract job seekers who value this feature," he said.

In Conclusion

The current US labor market situation presents a dynamic tension of positive and concerning indicators. Despite a slower growth rate than in previous years, the labor market has shown improvement, with healthy demand for workers and a decrease in the unemployment rate. However, the slowdown in hiring rates, corrections in specific job sectors, and the normalization of wage growth indicate potential challenges ahead. These factors collectively reflect the delicate balance between labor supply, demand, and economic stability. Understanding and navigating these dynamics will be crucial for policymakers, businesses, and individuals as they continue to adapt to the evolving labor market landscape.

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