US businesses slow hiring as views of the job market dim

Businesses have slowed hiring to levels largely unseen for the past decade even as US unemployment remains relatively low, there are significantly more job openings than Americans looking for work, and wages continue to grow.

The US hiring rate fell to 3.4% in June, the lowest level since at least January 2014, outside of the first two months of the pandemic in early 2020, the US Bureau of Labor Statistics reported July 30. The hiring rate, which measures the number of hires during a month as a percentage of total employment, has been steadily falling since late 2021, when it peaked at 4.6%. The US unemployment rate in June was 4.1%, roughly where it was at the end of 2021.

"It's a tough time to find a job, despite low unemployment," said Guy Berger, director of economic research at the Burning Glass Institute.

Businesses, many impacted by steeper borrowing costs from the Federal Reserve's "higher-for-longer" interest rates, have slowed hiring while millions of Americans, faced with the prospect of a gloomy jobs market, are staying in their current positions.

"The sluggish hires rate combined with a soft quits rate point to a job market where employers and employees alike are sitting tight," said Daniel Zhao, lead economist on Glassdoor's economic research team. "Employers are cautious about hiring and that is leaving anxious workers stuck in jobs that are not a good fit for them and new grads locked out of the job market."

The biggest drop-off can be seen in leisure and hospitality where 815,000 workers were hired in June, the lowest hiring level since April 2020, when the industry was effectively shut down.

There were 8.2 million job openings in the US in June, a roughly 33% decline from March 2022 when job openings peaked at 12.2 million. Yet the latest data is a 265,000 increase from April and still more than 1 million jobs above pre-pandemic levels.

While millions of openings remain, companies hired just 5.3 million workers in June, over 300,000 fewer than were hired a month earlier and roughly 600,000 fewer than were hired pre-pandemic, the latest government data shows.

"Perhaps employers are maintaining job openings but aren't hiring right now," said Nancy Vanden Houten, US lead economist at Oxford Economics.

Companies may be keeping job openings listed online without plans of filling them or employers, scarred by acute labor shortages and heavy turnover during the pandemic, could just be looking to maintain a pool of available candidates with no immediate plans to hire them, Vanden Houten said.

Cautious employers

Job openings data can have some "measurement quirks," with low response rates, but the overall data shows a cooling job market, said Zhao with Glassdoor.

"Employers are clearly cautious, holding back on mass layoffs but also waiting on a catalyst to resume hiring," Zhao said.

Workers' views of the labor market have been in steep decline even as the domestic unemployment rate has risen only modestly. This month, for example, 34.1% of consumers surveyed by The Conference Board said they viewed jobs as plentiful in the US, down from the peak of 56.7% back in March 2022. The Conference Board also reported July 30 that 16% of consumers now see jobs as "hard to get," the highest level since March 2021.

These more pessimistic views of job availability coincide with the Fed's efforts to fight skyrocketing inflation with higher interest rates. The Fed, which has held its benchmark interest rate between 5.25% and 5.5% since July 2023 after dropping to near zero in the early days of the pandemic, is expected to begin cutting rates in September.

As long as the Fed keeps rates high, hiring will remain sluggish, said Julia Pollak, chief economist at ZipRecruiter.

"The slow hiring rate is the direct effect of restrictive interest rates, which are slowing housing and vehicle markets, holding back business investment, and making it prohibitively costly for many US firms to fund their expansion plans," Pollak said.

ZipRecruiter, Pollak said, has seen a significant slowdown in hiring outside of the public sector and healthcare with online job postings below pre-pandemic levels.

"The labor market is both slower and slacker than before the pandemic," Pollak said.