Goodbye Great Resignation: The labor market returns to pre-pandemic normalcy


The job market is currently transitioning from its overheated, pandemic recovery state to a more sustainable condition. This shift is significant as the distortions caused by COVID-19 had both positive and negative implications. On one hand, workers benefited from abundant job opportunities and increased wage gains. On the other hand, this out-of-balance dynamic fueled inflation concerns for the Federal Reserve.

Recent key indicators support the notion that the labor market is returning to a state resembling the pre-pandemic period. For instance, the latest ADP employment report reveals a notable slowdown in job growth, with private-sector employment increasing by 177,000 in August compared to a gain of 324,000 in the previous month. Additionally, data shows that the rate of people voluntarily quitting their jobs, which serves as an indicator of workers' confidence in the job market, has returned to pre-pandemic levels.

The phenomenon known as the "Great Resignation," characterized by elevated job-switching rates, appears to be declining. The quits rate, particularly in the leisure and hospitality sector, where it was most prominent, has decreased and hiring rates are aligning more closely with pre-pandemic trends. Layoffs have also remained low, resembling the levels seen before the COVID-19 pandemic.

However, it's worth noting that while the demand for workers still exceeds the supply compared to pre-pandemic times, the gap is narrower than it was in 2022. There are currently 1.5 open jobs for every available worker, down from the peak of two open jobs in March 2022.

Looking ahead, it's important to consider the impact of interest rates on hiring decisions. Sectors sensitive to interest rates, such as financial services, have experienced flat hiring. The future trajectory of the labor market will also be influenced by various factors, including the upcoming government payrolls report, which is expected to show the addition of 170,000 jobs in August, the lowest since December 2020.  

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