(Reuters Breakingviews) - American workers have given up on quitting. Amid last month’s financial results from Wall Street was a warning from some firms that staff hasn’t exited at the rate employers expected. The U.S. economy has weathered inflation without widespread layoffs so far, but a Great Unresignation could make seemingly healthy job numbers harder to read.
Just over a year ago, the financial services industry was one of several facing a labor crunch. Job openings in the industry hit a record 499,000 in June 2022, according to the Bureau of Labor Statistics, as firms’ strong demand for workers clashed with a nationwide labor shortage. That hiring spree has since cooled. The sector added 6,300 jobs last month, nearly half the gains seen in July 2022.
But a big input in firms’ hiring plans is “attrition” – the number of workers expected to quit. Giant lender Wells Fargo (WFC.N) said on July 14 that attrition had been “slower than expected” in its second quarter. State Street (STT.N) gave the same message – one shared by other firms too, executives have told Breakingviews. That creates the problem of headcount costs remaining too high, at least for a while.
Companies generally don’t hope their staff will walk. But when interest rates are going up and workers demand higher pay, attrition feels like a painless way to bring down wage bills. That's not so easy anymore, since the so-called quit rate – the percentage of the workforce leaving their employer – has sunk back to its low levels from before the pandemic. One response is for companies to hire less, and the financial sector’s ratio of job openings to current employees has fallen to its lowest since September. If that doesn’t work, layoffs do. The rate of those is edging higher. Companies have an incentive to defer the moment of wielding the ax though, for fear of seeming more troubled than their rivals. Wall Street’s cull last year showed that once one company takes the plunge, others swiftly follow.
The reassuringly low unemployment of the past 12 months, then, needs to be viewed carefully. It might be a sign that rising rates haven’t hurt the economy. But it might also reflect employees staying put until they’re given a shove. The Great Resignation of recent years was an example of how people can behave in surprising ways, temporarily distorting economic predictions. This season’s corporate earnings may tell whether another surprise is in the works.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
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CONTEXT NEWS
The percentage of workers leaving their employer in the United States fell to 2.4% in July from 2.6% in the previous month, the Bureau of Labor Statistics said on Aug. 1. The so-called quit rate in the finance and insurance sector dropped to 1.1%, well below a peak of 2.4% in April 2022.
Wells Fargo flagged “slower than expected” attrition as a driver of higher severance costs during the bank’s July 14 earnings call. State Street cited similar pressure from low attrition during its own analyst call on the same day. Citigroup also mentioned severance expenses as a reason for its 9% year-over-year increase in operating costs on July 14.
The U.S. economy added 187,000 nonfarm payrolls in July, the Bureau of Labor Statistics said on Aug. 4. The unemployment rate dipped to 3.5% from 3.6%.
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