Amid news of rising prices and shrinking GDP, the labor market has remained a bright spot in an increasingly gloomy economic landscape. Employment growth has remained strong, worker’s earnings are rising, and employees still feel confident enough in their job prospects to quit work at near-record rates. Whether or not employment and wages can continue to grow, however, remains an open question, as brake lights appear in other parts of the economy.
The latest data from Gusto’s Economic Trends Tracker – through the end of July 2022 – indicates that the labor market has remained strong into the second half of this year, though growth has been slower than the accelerated pace seen in 2021. This slower pace of growth has been driven mainly by a reduction in hiring by companies, with Personal Services sectors such as Retail, Arts & Entertainment, and Food & Beverage seeing the largest slowdown. While companies are seemingly scaling back new headcount it is important to note that we have not seen a broad increase in terminations despite a few high-profile layoffs making headlines in recent weeks. In fact, our data shows robust wage growth nationally that continued through July.
As employers navigate economic uncertainty amid a historic labor shortage and inflation, they remain intent on retaining employees. A decline in hiring rates combined with accelerated wage growth, illustrates how an unprecedented labor market and record high inflation are forcing businesses to continuously adapt their approach. In the past month we’ve seen:
- Employment growth continues, but pace slows: As presented in Figure 1, the net hiring rate stood at 0.7% in July 2022, down from the 1.9% growth rate seen both last month (June 2022) and this time last year. This drop is largely a result of the seasonal decline in hiring seen each year from June to July, but also reflects a more general slowdown in employment growth in 2022, to rates more comparable to 2020 than 2021.
- Employers have reduced hiring, but haven’t increased terminations: This decrease in employment growth has been driven by a decrease in the rate of hiring by employers (Figure 2), which fell from 7.4% in June to 5.8% in July, and not an increase in terminations. In fact, the rate of involuntary terminations (Figure 3), ticked down from 1.3% in June to 1.2% in July – a sign that employers are intent on retaining staff amid an ongoing labor shortage.
- Earnings growth remains robust: As the labor market remains tight, businesses are continuing to work hard to attract and retain talent, and those efforts are showing up most clearly in workers’ paychecks. As seen in Figure 4, average hourly earnings increased 5.6% from July 2021 to July 2022, from $30.97/hr to $32.70/hr. Though robust, this wage growth still has not kept up with prices that have risen 9.1% over the past year.