While the August jobs report appears to reflect a strengthening economy, other leading indicators of labor market strength suggest there’s tension under the surface—a potential precursor to economic softening.

Employment indicators: Unemployment and job openings
Unemployment rate, 12m chg and job openings YoY%, inverted, 2002 - present

Unemployment rate from 2002 to present

FRED, Principal Global Investors. Data as of September 2, 2022.

The jobs report continues to paint a picture of an economy in good health. With a gain of 315,000 non-farm payrolls in August, the unemployment rate remains close to pre-COVID lows. Yet, payrolls are typically a lagging indicator of labor market strength and, in fact, other data already suggests a slight softening is underway.

  • Weekly initial jobless claims, a leading indicator of where the unemployment rate will go, and a timelier indicator than the monthly jobs report, have risen from a trough of 166,000 in March to 232,000 in the week of August 27.
  • JOLTS job openings rose modestly from 11.0 million in June to 11.2 million in July, but still well off the March 2022 peak of nearly 11.9 million. While still significantly higher than the 7.2 million job openings recorded in January 2020, the recent trend indicates a weakening in labor demand, and a softening in business hiring confidence.
  • The JOLTS quits rate, a measure of job market confidence, has fallen slightly, from a peak of 3.0% in December to 2.7% in July.
  • ISM Services employment index has fallen to contractionary levels since June.

Weakness in these indicators has generally been a precursor to a slowdown in payrolls and an eventual rise in the unemployment rate. The economy looks strong for now, but that may not be the case in a few months’ time.


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