The number of job openings in May was 11.3 million, down slightly from April’s number of 11.4 million. Though still high, this slight drop is a sign that the job market is on a track to depressurize, rather than deflate. The unemployed people to job openings ratio held at 0.52 in May, signaling the tight labor market has not gotten any tighter. Fed Chairman Jerome Powell has emphasized the importance of introducing slack into this market. The Fed hopes their fights against inflation will allow for a soft landing. In that scenario, the job openings ratio would increase to around 1 due to a decrease in job openings, rather than a jump in unemployment.
Layoffs held at a very low rate of 0.9% in May, a reassuring sign that the labor market is not deflating. In recessionary times, it’s common to see a panicked surge in layoffs. However, with such high openings numbers, companies are able to adjust by lowering their demand for workers, rather than diminishing their existing workforces. Our current labor market is so red-hot that there’s plenty of room to adjust to recession fears before any dramatic increases in layoffs are necessary. The largest increase in layoffs came from the technology industries, which rose to 1.0% from 0.9% in April. Even at their highest, sector-specific layoffs are incredibly low.
Depressurization is most apparent in two sectors: Manufacturing and Business and Professional Services. In both sectors, job openings decreased sharply. Consumer spending on durable goods dropped in May, and manufacturing businesses may have responded to that shift by cutting back on job openings. For similar reasons, businesses are tightening their expenses and delaying investments due to economic uncertainty, translating into a pullback on plans for workforce expansion. In both sectors, layoffs remain low. If other sectors follow this pattern, the Fed’s dream of a soft landing is well within reach.