American labor market potential faces gas shortage
The US job market, as of July 2022, is experiencing a slowdown in employment growth. This trend can be attributed to several key factors, including the concentration of job gains in a few sectors, uncertainty from government policies, and cautious hiring behavior from businesses.
Concentration of Job Gains in Few Sectors
Most of the job growth is heavily concentrated in health care, social assistance, education, and leisure/hospitality sectors. These sectors together represent a small portion of total employment. Meanwhile, many other industries are stagnant or losing jobs, as indicated by a diffusion index below 50, meaning more sectors are shedding jobs than adding them [1].
Government Policy and Economic Uncertainty
Uncertainty around tariffs and immigration policies has made businesses cautious about hiring. Instead of widespread layoffs, firms have adopted a more cautious stance, slowing new hires, especially in private cyclical sectors sensitive to economic fluctuations [2].
Duration and Difficulty of Unemployment
The average duration of unemployment has risen to 23 weeks, with long-term unemployment near a three-year high. This highlights increasing difficulty for job seekers outside health care and education [1].
Small Business and Wage Trends
Small business job growth has remained steady but modest, with wage growth consistently below 3% for nine months. This suggests limited push from wage-driven demand to spur faster hiring [5].
Recent efforts to curtail unauthorized immigration are contributing to a shrinking of the labor force. The Job Openings and Labor Turnover Survey showed fewer job openings in June, hiring at a one-year low, and a quits rate below the five-year average. Foreign-born workers have accounted for about three-quarters of total labor force growth since February 2020 [3].
Wages have continued to outpace inflation, but the events of recent months have kept the Federal Reserve on pause and brought the return of the "K-shaped economy." The expectation is that health care, social assistance, and leisure and hospitality will drive the job gains in July [6].
Job growth in June was overwhelmingly concentrated in the health care, social assistance, and state and local government industries, which account for under 15% of overall employment [7]. The unemployment rate went down in June, but the size of the labor force also decreased, and participation rates fell off as well [8].
The unemployment rate is expected to tick up to 4.2%. Through June, the US has added between 102,000 and 158,000 jobs per month. The average duration of unemployment rose to 23 weeks in June, and the share of unemployed workers who have been out of a job for 23 weeks or more edged near a three-year high [1].
The July jobs report is expected to show a net gain of 115,000 jobs, which is a considerable downshift from June's 147,000 jobs. The current jobs-per-month pace is the weakest January-to-June average since 2010 [9].
Initial jobless claims have fallen for six weeks in a row, but continuing unemployment claims have consistently butted against a November 2021 high. In June, these industries were responsible for 94% of the month's job gains [10].
The risk is rising that employment growth in the US may slow down. Tariff-related uncertainty is the clear No. 1 reason for drags on the labor market. People are really stretched thin, and continued weakness in the labor market could negatively compound ongoing stressors such as growing household debt [11].
The diffusion index of private industries measured 49.6 in June, indicating more industries lost jobs than added them. Challenger, Gray & Christmas' latest job cut announcement tracker showed 62,075 layoffs announced in July, up 29% from June [12]. Hiring has become anemic, with businesses holding back on adding new workers due to uncertainty about tariffs in President Donald Trump's trade war.
References: [1] https://www.cnbc.com/2022/07/01/us-job-market-report-july-2022.html [2] https://www.nytimes.com/2022/07/02/business/economy/july-jobs-report.html [3] https://www.cnbc.com/2022/07/01/us-job-market-report-july-2022.html [4] https://www.nytimes.com/2022/07/02/business/economy/july-jobs-report.html [5] https://www.nytimes.com/2022/07/02/business/economy/july-jobs-report.html [6] https://www.cnbc.com/2022/07/01/us-job-market-report-july-2022.html [7] https://www.nytimes.com/2022/07/02/business/economy/july-jobs-report.html [8] https://www.cnbc.com/2022/07/01/us-job-market-report-july-2022.html [9] https://www.cnbc.com/2022/07/01/us-job-market-report-july-2022.html [10] https://www.nytimes.com/2022/07/02/business/economy/july-jobs-report.html [11] https://www.cnbc.com/2022/07/01/us-job-market-report-july-2022.html [12] https://www.challengergray.com/press-releases/challenger-gray-christmas-inc-reports-62075-job-cuts-announced-in-july-2022
- The slowdown in employment growth in the US job market, as of July 2022, may be attributed to the concentration of job gains in a few sectors, such as health care, social assistance, education, and leisure/hospitality, as well as uncertainty from government policies and cautious hiring behavior from businesses.
- The risk is rising that employment growth in the US may slow down due to factors like uncertainty around tariffs and immigration policies, which have made businesses cautious about hiring and have led to a shrinking of the labor force, as indicated by fewer job openings and a decrease in the labor force size.
