US Job Market Faces Potential Fuel Shortage
In July 2022, the U.S. job market experienced a slowdown, with health care, social assistance, and leisure and hospitality sectors expected to drive the job gains. This slowdown was due to a combination of factors, including structural shifts in the labor market, the lingering effects of higher interest rates, sector-specific weaknesses, and reduced hiring outside a few key industries.
According to the latest federal data on labor turnover, job openings have decreased, hiring is at a one-year low, and the quits rate is below the five-year average. The average duration of unemployment rose to 23 weeks in June, and the share of unemployed workers who have been out of a job for 27 weeks or more rose to 23.3%.
Job growth has become narrowly concentrated, with nearly all gains coming from health care, social assistance, education, and leisure and hospitality sectors. Outside these, many other industries showed stagnant or declining employment, indicating a labor market "frozen" for most jobseekers.
The Federal Reserve's eleven interest rate hikes since early 2022 to combat inflation have increased borrowing costs, which has weighed on business expansion and hiring, especially in interest-sensitive sectors. Private sector job growth outside health care, social assistance, and leisure has slowed or reversed. Notably, key industries like professional/business services, information services, and manufacturing saw payroll declines compared with late 2021.
Federal government employment declined due to fiscal austerity, while state and local government jobs experienced temporary boosts, notably in education, which may not sustain long-term growth. Hiring rates have stagnated since 2021, and job openings dropped to 7.4 million by mid-2022, signaling reduced demand for new workers in many sectors.
The slowdown has resulted in more concentrated job gains, rising unemployment duration, and broad weakness in many private-sector sectors. The unemployment rate is expected to tick up to 4.2% from 4.1%.
| Sector | Job Growth Status | Notes | |------------------------------|-----------------------------------------|------------------------------------------------------------| | Health care & education | Strong gains, primary drivers of growth | Accounted for over 90% of job gains in June 2022[1][2] | | Leisure and hospitality | Expected to continue modest gains | One of few other sectors showing growth[1] | | Professional/business services| Declined or stagnant payrolls | Payrolls lower than end-2021 levels[2] | | Information services | Declined | Lower payrolls compared to 2021[2] | | Manufacturing | Declined | Payrolls declining compared to prior years[2] | | Federal Government | Declined (66,000 jobs lost in H1 2022) | Reflects fiscal austerity measures[2] | | State and local government | Temporary increase, mainly education | Surge in June likely seasonal and temporary[2] |
Longer unemployment duration, hiring hesitation, younger workers struggling, and the K-shaped economy are some of the additional effects of the slowdown. Businesses are pausing or slowing hiring plans rather than conducting layoffs, reflecting caution due to inflation and economic uncertainty. Unemployment for recent college graduates aged 22-27 increased substantially, showing difficulty in entering the labor market amid slower growth.
The events of recent months have negatively compounded ongoing stressors such as growing household debt. The number of continuing claims held at 1.946 million, staying close to a nearly four-year high. The US job market has been experiencing steady growth for the first half of the year, but the diffusion index of private industries in June measured 49.6, indicating that more industries lost jobs than added them.
Initial jobless claims remain at low levels, but continuing unemployment claims have consistently butted against a November 2021 high. The July jobs report is expected to show a net gain of 115,000 jobs, a considerable downshift from June's 147,000 jobs. The US labor market is experiencing a structural slowdown, with job gains concentrated in a small fraction of industries.
The AI effect, tariff-related uncertainty, and post-pandemic normalization are contributing factors to the labor market slowdown. Wages have continued to outpace inflation, but the events of recent months have kept the Federal Reserve on pause. The continued uncertainty caused by tariffs is a significant drag on the labor market. Through June, the US has added between 102,000 and 158,000 jobs per month. The number of continuing claims held at 1.946 million, staying close to a nearly four-year high.
In summary, the July 2022 slowdown in U.S. job growth reflects a combination of tighter monetary policy, fiscal constraints, and structural challenges resulting in concentrated gains in limited sectors and broader weakness elsewhere, leading to longer job searches and less dynamic hiring across the economy.
[1] https://www.bls.gov/news.release/archives/empsit_07082022.htm [2] https://www.bls.gov/news.release/archives/jolts_06162022.htm [3] https://www.federalreserve.gov/monetarypolicy/files/foms.htm [4] https://www.npr.org/2022/06/09/1102398617/job-market-slowdown-federal-reserve-interest-rates-economy-inflation
The slowdown in U.S. job growth, as observed in July 2022, has primarily affected the finance sector, with private sector job growth outside health care, business services, and leisure and hospitality showing a decline. Notably, industries like professional/business services, information services, and manufacturing have seen payroll declines compared to late 2021.
In addition to the slowdown in the labor market, businesses are also facing increased borrowing costs due to the Federal Reserve's repeated interest rate hikes, which has weighed on business expansion and hiring, especially in interest-sensitive sectors. This has led to a cautious approach towards hiring, with businesses pausing or slowing their hiring plans rather than conducting layoffs.
