This is the part of the labor market where workers have the least bargaining power

Friday’s jobs report showed surprising strength in the labor market, but there are signs that all is not well for all workers.

Attrition in low-wage sectors such as retail, leisure and hospitality is slowing, said Nick Bunker, economist at Indeed Hiring Lab.

That means people working in those industries likely have less bargaining power than before, he told MarketWatch.

Here’s why: people leaving their jobs are an indicator of job seekers’ confidence in their ability to find a new job. Quit rates can also predict what will happen to wage growth in the coming months.

“A high quit rate means that there are more workers than usual expressing their wishes by quitting their old job. The vast majority of them go to new jobs,” Bunker said.

Granted, the dropout rate is still higher than pre-pandemic rates, and people are still changing jobs for higher pay, Bunker said, but the cooling trend is pretty clear, especially in commerce. Retail.

Quit rates in the leisure, hospitality and retail sectors peaked in late 2021 and early 2022, and began to decline at the start of the year, according to analysis by Indeed. based on Bureau of Labor Statistics data.

The U.S. labor market in July was strong, adding 528,000 new jobs, which came as a surprise amid layoffs in the tech sector and elsewhere. Economists expected nearly 300,000 new jobs. The jobless rate also fell to 3.5% from 3.6% a month ago, according to Bureau of Labor Statistics data released Friday.

Economists have said the labor market is among the strongest in 50 years.

But there were mixed signals in the data. For example, a slowdown in wage gains for low-wage industries Continued in July, Bunker pointed out. The growth in average hourly earnings of low-wage production workers has been higher than middle-wage and high-wage workers since the start of 2021, but has fallen since the start of this year. It was 13% in December and fell to around 6.2% in June, according to Indeed analysis.

The number of people who quit their jobs in June fell slightly to 4.23 million, according to the latest data from the Labor Department. A year ago, the number of resignations reached 4 million for the first time, a trend that some have dubbed “the great resignation” and others the “great renegotiation.” The pre-pandemic drop-out level averaged around 3 million per month.

Retail, restaurant and hospitality workers led the trend out of work. Most of the abandonments that emerged in the spring of 2021 occurred in these sectors. Demand for labor in these industries skyrocketed as people dined out and visited stores in the wake of vaccinations and the reopening of the economy.

Quitting smoking can pay off. About 60% of workers who changed jobs from April 2021 to March 2022 said they saw their earnings increase, according to a Pew survey.

About half of job changers were earning around 10% more than a year ago after wages were adjusted for inflation, making them one of the few workers whose wages exceeded the inflation.

The cost of living rose 9.1% in June from a year ago, and many Americans are struggling to cover their daily expenses. Some dipped into their savings to manage their spending while others changed their spending habits or turned to credit cards. The Federal Reserve has raised the federal funds rate four times since March in a bid to rein in inflation, which has been high for 41 years.

Economists noted that the impacts of inflation, as well as interest rate hikes, could impact consumer spending.

Retailers are already feeling the pinch, with Walmart WMT,
+0.80%
issuing a warning of earnings falling short of expectations and a few others declaring losses in the last quarter resulting from inflation and rising spending.

If the economy slows, the current strong demand for workers in warehousing, retail and restaurants could cushion those workers from job losses, Milken Institute chief economist William Lee. But entry-level white-collar workers could see layoffs, he said, as companies reshape their business models.

The big question right now, Bunker told MarketWatch, is how companies will respond to falling consumer demand. Employers could either scale back their hiring plans or let people go.

Although layoffs are common during downturns, he said, because the labor market is currently tight and employers have struggled to hire over the past year, employers could consider “overcome this drop in demand” and retain workers. that they have. It’s called “labour hoarding,” he says.

“If this were to happen, it would give you an indication that we might see less of an impact on low-wage workers than we have seen in the past, especially if there are sectors that are currently understaffed” , Bunker said. .

Earlier this week, Walmart announced it was laying off 200 company employees to restructure the business.

Jimmy Carter, a Walmart spokesperson, told MarketWatch in an email that the move is one of many the company has taken to update its structure and provide better service to its customers and the community. business in the broad sense. He said Walmart is investing more in key growth areas such as e-commerce, supply chain, technology, health and wellness, advertising and sales.

“It is also an important context that as customers continue to evolve, we are evolving to ensure we serve them,” he wrote.

Walmart’s job cuts provide insight into the pressures facing the retailer right now, but they don’t necessarily signal distress for the broader economy, Bunker said, noting that “the vast majority of employees of Walmart are people who work in physical retail stores. .” He said it would be a more worrisome signal for the broader economy if Walmart were laying off store associates.

“If Walmart said, ‘We’re starting to lay off store associates,’ that would be a sign that they’re starting to think, ‘OK, the demand to come into our stores and buy things is going down so much that we need to let people go. leave. But that’s not what we saw in the ad,” Bunker said.

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