March 2023 Market Brief: Nobody Puts the Labor Market in the Corner

Listen to the brief

Several economists have suggested this is a first-of-its-kind economy, and we can blame it all on the labor market: It just won't pick up what the Federal Reserve is putting down. Last month, the Federal Reserve implemented its ninth rate hike in one year, increasing lending rates to their highest level since September 2007. For perspective on the consumer side, mortgage interest rates reached 6.2 percent last month. If you purchased a home for $392,000 in March 2023, your mortgage payment is the same as someone who paid $600,000 in 2021 at a 2.6 percent interest rate.

It hurts. And it's meant to.

As we've written about before, the interest rate hikes are aimed at slowing down an economy that accelerated very quickly, driving inflation to its highest levels since the 1970's. The Federal Reserve is hoping that this short-term pain (interest rate hikes) will produce long-term gains by lowering inflation. In March, inflation clocked in at 5 percent. While the pacing of inflation has come down compared previous months, it's still higher than the Federal Reserve's two percent target. Not to mention, core inflation (the cost of things minus energy and food) was 5.6 percent this month, causing several economists to predict the Feds have more hikes up their sleeve.

Ultimately, the Federal Reserve is counting on these rate hikes to ease a tight labor market that's experienced historic wage increases the past couple years due to stiff competition for workers. These increases are passed onto consumers by way of higher prices at checkout, and to companies by way of higher borrowing costs at the bank. If the Feds can increase the supply of workers, companies won't have to use higher wages as their lure; if they can decrease incentives for growth, companies won't need to hire as many workers.

As a result, we should expect to see:

• higher unemployment by way of layoffs
• fewer job openings
• slower wage growth
• increased labor force participation rates (people missing from the workforce who now feel the financial pinch and return)
• fewer job quits

But just three of those things occurred in March: slightly lower job openings, slower wage growth, and an increase in labor force participation.

In fact, unemployment ticked back down in March to its 50-year low (3.5 percent) and job quits ticked back up to the 4-million mark. Some speculate unemployment isn't moving because there aren't enough workers to layoff given the long-haul talent shortage. And because there are still plenty of job openings, workers remain confident about quitting jobs for better opportunities.

One final note about the labor force participation rate that lends credibility to the first-of-its-kind economy sentiment: Prime-age labor force participation—the share of 25-to-54-year-old Americans at work—has risen above the peak set in 2020, immediately before the pandemic, to 80.7 percent.

In other words, it took less than three years to achieve what it took nearly eleven years to achieve after the recession of 2008. And, as our industry-specific data attached to this report illustrate, there is a significant amount of work ahead, particularly in engineering and sciences. With labor force participation increasing and unemployment remaining low, economists are cautioning companies considering layoffs (in anticipation of temporary slower growth) to do so with the understanding that talent won't likely be available to fill their open positions later. Ron Hetrick, economist at Lightcast put it best, “If you're an employer, take the labor shortage very seriously, future recessions may not help us anymore.”

Employment Trends in Engineering and Sciences

Each month, Actalent's market analyst, Eliza Hetrick, compiles research related to both trends in the economy and those specific to engineering and sciences industries. Be sure to download the report for up-to-date employment trends in Utilities, Construction, Architecture + Engineering, Healthcare, Scientific Research + Development, Automotive, Consumer and Industrial Products.

Connecting the Dots

1. Talent Pipelines. As more students and families consider the value of a college education, several professional industries are stepping in with an alternative typically reserved for trade industries: apprenticeships. A recent article in the Wall Street Journal cites a 15 percent decline in college enrollment and a 50 percent increase in the number of apprenticeships. Companies in cybersecurity, banking, and consulting industries are among those increasing their offerings currently.
2. A Shifting Landscape: There's been a shift in employee preferences and companies'; willingness to think outside the box about how important work gets done. Especially considering the significant increase in those striking out as independent workers and/or consultants. Panelists at a recent Staffing Industry Analysts conference forecasted that even more people would work in a nontraditional capacity over the next ten years, “Whether…they establish their own company or work as a consultant on a variety of projects, we're going to see more and more of that.”
3. Fly Me to the Moon: Artemis II is scheduled to launch in November 2024 and complete a flyby mission of the moon. The purpose of the mission is to test the spacecraft's systems, instrumentation, and deep-space capabilities. This information will be used to prepare for a future set of moon landings, currently scheduled for 2025. Next up? Mars.