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February jobs and inflation reports: Are labor markets stabilizing?

By John M. Bremen | March 7, 2024

Talent shortages continue in many areas, but labor market conditions are more favorable than they were at this time last year.
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As business leaders approach the fourth anniversary of the COVID pandemic shutdowns, recent U.S. Bureau of Labor Statistics reports suggest that labor markets continue to stabilize.

Quit rates overall: In December 2023, the U.S. quit rate was 2.2%, now slightly lower than the pre-pandemic quit rate of 2.3% (it increased to 3.0% during the height of The Great Resignation). The quit rate was 2.3% for four consecutive months starting in July 2023, falling to 2.2% in November where it remains. The current level and stability of quit rates indicate that labor markets overall are less volatile and employees are choosing to remain with employers at more consistent rates.

Quit rates by industry: Quit rate trends varied considerably by industry over the past year. The largest decreases in quit rates between December 2022 and December 2023 were in the following industries, creating hiring relief in many job categories:

  • Retail trade (1.2% change from 3.9% to 2.7%)
  • Transportation, warehousing and utilities (0.8% change from 3.1% to 2.3%)
  • Accommodation and food services (0.7% change from 5.2% to 4.5%)
  • Professional and business services (0.6% change from 3.1% to 2.5%)
  • Healthcare and social assistance (0.6% change from 2.7% to 2.1%)
  • Leisure and hospitality (0.6% change from 4.9% to 4.3%)

The quit rate in some industries increased, such as wholesale trade (up 0.6%) and arts, entertainment and recreation (up 0.1%).

Inflation: The U.S. Consumer Price Index increased 3.1% during the 12 months before January 2024. This downward trend from the 12-month rate of 3.4% ending in December 2023 is considerably lower than the 12-month rate of 6.4% ending in December 2022. The January 2024 rate remains higher than pre-pandemic levels, which were close to 2.0% on average. Inflation rates also are significantly down from pandemic highs in the U.K., Eurozone and Canada. While inflation remains higher than most government targets, rates reflect greater stability in markets and in the buying power of employees.

Wage and salary increases: Wages and salaries for private industry workers increased 4.3% for the 12-month period ending in December 2023. This compares to a 5.1% increase for the 12-month period ending in December 2022. According to WTW’s Salary Budget Planning Survey, U.S. employers are planning an overall average salary increase of 4.0% for 2024. Though down from the reported actual average increase of 4.4% in 2023, the numbers remain well above the 3.1% salary increase budget in 2021 and years prior.

2023 was the first year since 2020 where U.S. pay increases were higher than inflation. Pay increases in the U.S. had been higher than inflation every year from 2008 through 2020. A return to that pattern indicates greater stability in labor markets and less of a need to “ratchet” employee pay, which also impacts inflation.

Unemployment rate: In January 2024, the unemployment rate was 3.7% for the third month in a row. Unemployment is far lower than the 6.4% rate from January 2021 and consistent with the pre-pandemic level of 3.6% in January 2020.

Labor participation rate: The overall U.S. labor force participation rate, at 62.5%, was unchanged in January 2024. U.S. labor participation rates have been dropping for decades. The pandemic created a disruptive gap that has closed gradually to align with the longer-term trend.

The current labor participation rate is about 0.8 percentage points lower than February 2020, versus a much larger gap of 3.2 points in April 2020. The labor force participation rate for people ages 25 to 54 (a core active workforce segment) has returned to its pre-pandemic level. While talent shortages continue in many areas, labor market conditions are more favorable than they were at this time last year.

Job openings, layoffs and hire rates: The number of job openings changed little at 9.0 million in December (down from a high of 12.0 million in March 2022). The layoff rate was 1.0% for the fourth month in a row and considerably lower than last summer’s peaks. In December, the number and rate of hires were little changed at 5.6 million and 3.6% (hire rates were considerably lower than December 2022 in most industries).

How are leaders handling changing workforce dynamics?

Effective leaders, while relieved that labor markets are stabilizing, understand that many of the conditions driving The Great Resignation remain present and unemployment remains relatively low. They recognize that workforce demographics and elements of the working world have changed and won't revert, even as markets stabilize. They know that while employees today may be more likely to stay with their employers because of increased risks in the economy, they will be more engaged and productive if they feel valued and are treated fairly.

During the disruption of the past four years, effective leaders retooled their organizations to adopt new talent strategies and create places people want to be. Research continues to show that a focus on culture, values, purpose and total rewards differentiates effective leaders. Data suggest organizations with transformative employee experiences are far more likely to report higher performance than those that lack such definition.

Effective leaders understand the importance of supporting enduring talent practices and commit to them regardless of the external environment.

A version of this article originally appeared on Forbes on February 21, 2023.


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