Labor Market Excitement!

You can learn a lot by analyzing the data.

This morning, the Bureau of Labor Statistics (BLS) released “The Employment Situation – June 2023.” It reported the U.S. economy created 209K net, new payroll jobs last month. 60K were in the public sector and 149K in the private sector.

Both the headline and private sector numbers were less than analysts predicted. However, the private sector data was the more disappointing of the two, coming in at 1.44 standard deviations to the left of the median estimates.

In layman’s terms, the jobs data was weaker than just about anyone had anticipated.

This, coming on the heels of the notably softer “Job Openings and Labor Turnover – May 2023,” better known as JOLTS, released yesterday.

It seems job openings declined from 10.32 million in April to 9.82 million in May, a decrease of 496K.

That is a big one-month drop in this series.

Apologists would be right in countering that 149K new, private sector jobs and another 9.82 million openings are better than nothing. In fact, those openings would have been an all-time high prior to the pandemic. And 149K jobs? That is roughly equal to the entire population of the Savannah, Georgia, from where my co-worker, Janet, just returned from a pleasant vacation.

So, why am I taking such a negative tone with the data? Better yet, why am I asking myself questions?

I see a story emerging within the combined data of the two reports (Employment Situation and JOLTS). Although one-month doesn’t necessarily a trend make, what seems to be happy is intuitive. All the more so at this point in the economic and Fed tightening cycles.

Simply put, corporate America’s demand for semi- and unskilled workers seems to be abating, at least somewhat.

Bear with me.

For starters:

  • According to Table A-4 in The Employment Situation report (see page 16), the unemployment rate for U.S. workers with ‘less than a high school diploma’ has spiked from 4.8% in March 2023 to 6.0% in June.
    • That is a big shift in one quarter. By comparison, the unemployment rate for workers with a ‘bachelor’s degree and higher’ has remain constant at 2.0%.
  • What’s more, the ‘less than a high school diploma’ demographic has shed 130K jobs over the last three months.
    • By comparison, there are currently 655K more college graduates with a job than there were in March.

Then, there is good, old Table B-1 (see page 35) which is ‘employees on nonfarm payrolls by industry sector and selected industry detail.’ The table below outlines where the weakness in the labor market appears to be.

Industry Sector May Employment  June Employment  Change 
Food manufacturing 1,725.7 1,722.4 (3.3)
Wholesale trade 6,050.6 6,047.0 (3.6)
Retail trade 15,550.2 15,539.0 (11.2)
Temporary help services 3,024.1 3,011.5 (12.6)
Food services and drinking places 12,259.8 12,259.0 (0.8)


I must be slipping, right? The U.S. economy sheds 800 jobs in restaurants and bars and I am making a stink about it? It does seem silly until you realize that is the first monthly decline for that industry sector since December 2020. Also, a deeper dive into the data shows that demand for temporary help services has been steadily declining since this time last year. Further, both wholesale trade and food manufacturing seem to have peaked.

The thing is, these sectors represent a pretty sizable chunk of our semi- to unskilled and/or hourly workforce.

As a television ad might say: “But wait! There’s more!”

  • In the May 2023 JOLTS report, there were 15K fewer jobs openings in wholesale.
    • While that might not sound like a lot, it was a 5.8% decrease from April.
  • There were 829K job openings in retail trade this past May.
    • This was a 125K decline from April, representing a 13.1% swoon.
  • Nondurable manufacturing, in which food manufacturing is a sizable percentage, saw job openings fall an eye-watering 16.9%, or 46K.
  • Finally, the ‘accommodation and food services’ industry had 39K fewer job openings this past month, down to 1,183K.
    • While that might sound like a gracious plenty, there were 1,406K openings in May 2022.

Combined, these four industry sectors represented 45.4% of the decline in job openings in May. This despite the fact that they only represented about 26.2% of all job openings in April.

When taken together, the Employment Situation and JOLTs reports, it seems as though the U.S. economy is not only not looking for as many semi-skilled or hourly workers, it is actively reducing them. As painful as that might be in households across the country, it makes perfect sense.

Economics almost always does, at least to me.

Think about it: When earnings are growing slowly or even falling, which associates get the pink slip first? The most productive and profitable? Or the least productive and least experienced? While not always the case, the latter are ordinarily the first to go.

The same can be said of job openings. If a company is cutting back on its hiring plans, which slots don’t get filled? The low-level, cost-center employees or the top-producing, client-facing sorts? Considering there is always a shortage of the latter, by definition, the former are more likely to be filled last, if at all.

Now, after 5 consecutive quarters of modest economic growth, coupled with much higher borrowing costs, it seems employers are scaling back on the low-hanging fruit. If this is indeed the case, it has been an extremely long time in coming.

The question remaining is this: when conditions change for the better, are employers going to rehire hourly workers to the same degree as always? Or will they decide to add the additional capacity through technology?

My bet would be 25% the former and 75% the latter. In layman’s terms, I strongly suspect the good people in places like Birmingham, Mobile, Memphis and the like will start seeing more self-service kiosks at the grocery and fast food restaurants.

Shoot, that has been a contention of mine for a while. However, this morning’s Employment Situation report and yesterday’s JOLTS data reinforced it for me, strongly. Yes, you can learn a lot by analyzing the data.

Whew. You know, how I don’t bore people to death sometimes escapes me.

John Norris

John Norris

Chief Economist

Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this any every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.


Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.