Listen to the brief
Despite efforts to slow wage growth and increase unemployment, the labor market remains solid. But can it last?
The labor market added 209,000 jobs and unemployment edged down in June. Wage growth is slowing but it's still up on the year. This means the economy might be running a little too hot for the Federal Reserve's liking, leaving many to predict another rate hike at their meeting later this month.
As we've written about before, the Federal Reserve's primary goal is to fix inflation. The interest rate hikes are their tool to achieve that, except the tool works more like a sledgehammer than a scalpel—the interest rate hikes can't just chip away at wage growth or demand for goods and workers, they hit everything.
But even after 10 rate hikes in just over a year, the economy and labor market remain strong AND inflation shows signs of cooling—consumer price index (inflation) was up 3% from one year ago, the lowest reading since March 2021.
How did this happen? Can it last?
Wage growth was implicated as a big driver of inflation. Now, with fewer job openings, workers have less bargaining power around wages: not great for them but good for inflation. Add to that more people joining the labor force and you have supply that's inching closer to demand levels without spiking unemployment. And while job openings have declined slightly, companies are still hiring, just at more normal levels. In fact, Conference Board's Employment Trends Index, predicts that "jobs gains will likely continue, albeit somewhat slower, over the next few months."
Companies are prioritizing their cost cutting measures in this high-interest rate economy. If the Federal Reserve does implement another rate increase later this month, we'll all be watching closely for its impact. Afterall, everything has a breaking point.
A Look at Employment Trends in Engineering and Sciences
Actalent's monthly market intelligence report offers a comprehensive look at labor market trends, including those across all Actalent-supported industries. We've extracted a few highlights from that report:
- Consumer and Industrial Products added 7,000 jobs in June, in large part due to the construction boom boosted by government investments in infrastructure spending and manufacturers' private construction spending and creating historic demand for excavators. Also contributing to the rising demand for this type of equipment is the shortage of construction workers: an excavator can be used in place of a backhoe, front-end loader, and crane, and they're easier for less experienced workers to operate. As a result, companies like Deere, Caterpillar, and CNH International are expanding or upgrading their models.
- Architecture and Engineering added 6,300 jobs in June. The architectural billings index (ABI) was 51.0 in May (latest data available), the highest it's been since September 2022. Inquiries into new projects and the value of new design contracts also grew. Softening inflation may be benefitting the architectural services industry, but more than one month of growth will be needed to determine if business conditions are truly stabilizing.
- Transportation added 4,300 jobs in June as more EV battery plants were announced, including a $2.4 billion Gotion battery parts plant near Big Rapids, MI (estimated creation of 2,350 jobs after completion in approximately 2 years), a $3 billion GM plant in St. Joseph County, IN (estimated creation of 1,700 jobs when production begins in 2026), and a $48 million Toyota battery lab at its Michigan HQ (operational in 2025).
Connecting the Dots
- Pain Points: Where high wages and high interest rates collide. The hot job market resulted in companies offering higher wages to attract scarce workers. These higher wages contributed to high inflation as more cash flowed into an economy that couldn't keep up with demand. The Federal Reserve implemented interest rate hikes to slow wage growth (and employment) to slow inflation. And now, the organizations that borrowed money on low-interest loans (now high-interest loans) to pay for higher wages are in a real pickle. The Wall-Street Journal recently published an article detailing this exact situation occurring in some hospitals, "Some Hospitals that Spent Big on Nurses During the Pandemic Are Now Short on Cash."
- Unemployment and labor force participation won't budge but retirements will. Despite higher interest rates aimed at slowing employment (that is, increasing unemployment) the rate won't budge, and in fact, unemployment decreased in June. Similarly, the labor force participation rate has remained unchanged for four months. Meanwhile, it's estimated 11,000+ people will turn 65 every single day in the United States in 2023, translating to roughly 4 million workers over the course of a year. If just a quarter of eligible retirees took advantage of their aging status, the US would experience a loss of 1 million workers. In this in-depth report, The Federal Reserve Bank of St. Louis offers compelling insight into the upward trend of retirements, revealing a consistent increase in the rate of actual retirements versus predicted retirements with a stunning graphic. Perhaps this helps explain the unemployment rate that won't budge.
- Women in the crosshairs of gainful employment, economic policy, and workplace stress. Women have been lauded as driving post-pandemic job recovery amid low labor force participation rates for other groups and higher-than-expected retirements. Available childcare, flexible working conditions, and increased wages have supported the return. What remains to be seen is how higher interest rates, return to office mandates, increased workloads, and slower wage growth will impact their ability to remain employed, at the very least, engaged. A recent survey of executive women released by KPMG found 91% of women perceived an exponential surge of stress in the workplace compared to pre-pandemic levels. Nearly 6 out of 10 of the 1,500 women surveyed reported increased stress from managing their teams' mental health and wellness in addition to their own.
References: Actalent's June 2023 Economy and Labor Market Report synthesizes information from a variety of sources including the United States Bureau of Labor Statistics survey results, Lightcast (formerly Emsi-Burning Glass), media reports, industry intelligence, company earnings reports, and external labor market data. The full set of data and references are included as a companion to this article.
If you'd like more information on the data presented, or have questions about the information provided in this report, please contact our team at: email@example.com.