390K Jobs Added - Is this good news for U.S. businesses?

June 3, 2022
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Author: Mallory Vachon, Ph.D., Sr. Economist

The economy added 390,000 jobs in May, down slightly from previous months but well-above economists’ expectations. Hiring remains strong despite uncertainty and an expected slowdown. With unemployment rates near pre-pandemic lows and nearly two job openings for every unemployed person, U.S. businesses need to focus on retaining talent.

LaborIQ® analysis shows a 7% gap between the pay for existing employees and the competitive salary needed to attract new workers in the current market. Businesses that haven’t assessed internal pay equity are likely to lose out.

National Labor Market Performance | May 2022

It’s important to remember the recent volume of hiring and job growth is unlike anything the economy has experienced – and is likely unsustainable. Especially as we get closer to pre-pandemic employment levels, monthly job gains are likely to moderate. Even with expectations of an economic slowdown, the labor market is likely to remain tight.

The unemployment rate held steady at 3.6% in May – just above the pre-pandemic low of 3.5%. So businesses are simply running out of talent to hire. In April, there were a 11.4 million job openings but only 6 million unemployed workers – a slight increase from April – available to fill those open roles, meaning there are nearly two open jobs for each unemployed worker.

Other good news in May’s jobs report is the increase in labor force participation – those who are employed or unemployed and looking for work. 330,000 workers joined the labor force, nearly erasing April’s 360,000 decline. Contributing to the tight labor market, the labor force remains 207,000 below pre-pandemic levels, with the labor force participation rate at 62.3%.

Trends over the past two decades show the labor force participation rate declining, largely due to the aging population. From 2000 through 2010, the labor force participation rate averaged around 66%, compared to around 63% from 2015 through 2019.

So even though the economy is approaching the pre-pandemic labor force participation and unemployment rates, on a relative basis, the labor force has been declining as a share of population over the past two decades.

Despite Uncertainty, 2022 Hiring Should Remain Strong

May’s jobs report sheds some light on how U.S. businesses have responded to a range of challenges and uncertainty – the Russia-Ukraine War and record inflation, supply chain issues exacerbated by COVID lockdowns in China, among others.

These challenges have led many economists to project an economic slowdown in late-2022 or 2023. For now, the outlook for 2022 remains strong. The tight labor market and turnover are likely to subside somewhat but remain elevated – LaborIQ® projects 215M total job openings, hires and quits in 2022.

Many businesses will be hiring even if there is a slowdown and – with the small pool of available workers – they may be poaching talent. LaborIQ® analysis shows a 7% gap between the pay for existing employees and the competitive salary needed to attract new workers in the current market. Businesses that haven’t assessed internal pay equity are likely to lose out.

Recovery on the Horizon

The economy lost 22 million jobs in the early months of the pandemic, and for the first time fewer than 1 million jobs – around 822,000 – remain unfilled. 2022 started with an incredibly strong start to hiring in the U.S. – job gains for the first four months of the year have totaled 2.4 million, an average of nearly 490,000 per month. The current pace is 2.5 times the pre-pandemic average of 190,000 jobs added per month from 2015-2019. At this pace, we will reach pre-pandemic employment levels by this summer – much more quickly than many expected just a year ago.

LaborIQ by ThinkWhy reports, forecasts and advises on employment conditions and the impact to jobs, industries and businesses across all U.S. cities.