The US labor market is slowing down.
Job gains in each of the last three months have been below 200,000. The unemployment rate is at an 18-month high. And job openings fell to a two-year low in July.
And now, some of the biggest beneficiaries of the pandemic-era labor market are seeing their leverage in the labor market erode: job-hoppers.
In a note to clients on Friday, economists at Bank of America led by Michael Gapen noted that wage gains for those switching jobs are now just barely higher than those who stay in their current role.
The three-month average of annual wage growth for job switchers dropped to 5.6% in August, down from 8.5% in July 2022 and barely higher than the 5.2% wage growth seen by those who didn't change jobs last month, according to data from the Atlanta Fed.
Overall wage gains in August stood at 5.3%, down from a peak of 6.7% in the same month last year.
"The moderation in wage inflation appears to be mostly driven by wage growth for job switchers," the firm wrote. "Wage growth for job switchers typically outpaces those of job stayers and the gap between the two spiked in 2022 as labor markets tightened, peaking at 2.8 [percentage points] in August 2022. It is now down to just 0.4 [percentage points], a sign that job-hopping is slowing but so is labor demand."
The firm also flagged the drop in the quits rate from last week's JOLTS report as a sign that the labor market is less dynamic for those looking for new opportunities.
And while some economists framed last week's rise in the unemployment rate as a "good" increase as this uptick was drive by higher participation, the details of that rise in participation paint a picture more consistent with the less dynamic labor market suggested by falling wages for job-hoppers.
Preston Mui, an economist at Employ America, wrote Thursday that: "The increase in participation was not driven by an increase in labor force entries, but rather a decline in labor force exits. And more generally, an increase in unemployed labor force entrants is not necessarily an indication of a strong labor market."
'Clearly slowing, but still strong'
The monthly jobs report puts the population into three basic buckets: people working, people looking for work, and people not looking for work.
As Mui noted, the government's monthly jobs report can often miss a status change among workers if people move relatively quickly between jobs or between life statuses, such as retirement or a hiatus.
The dynamism of the labor market since the pandemic began — in which demand for workers significantly outpaced supply — often kept workers from registering as looking for work and not finding it. Hence a sharp drop in the unemployment rate to multi-decade lows.
But as the labor market slows, more workers between roles appear to be spending both more time looking for work and are slower to leave the workforce altogether upon losing employment.
"The number of people who entered the labor force in August is actually similar to the number of people that entered in July," Mui noted. "The biggest difference is that fewer people, especially employed people, left the labor force in August than in July. High labor force participation is as much about keeping already-existing participants in the labor force as it is bringing in new participants."
Fewer retirements, a lag in capturing previously laid off workers still looking for work, or a variety of other factors could all be behind this increase. And given the size and complexity of the monthly jobs report — and the revisions to this data that will come in the months ahead — Mui cautions on drawing too many conclusions from one month's data worker flows.
In Mui's view, the best indicator for the labor market remains total employment, which has slowed over the summer but remains at its highest levels since the pandemic. "While employment rates are still high, the pace of increase has slowed down," Mui wrote. "The labor market is clearly slowing — but still strong."
But for a Federal Reserve that remains focused on finding "better balance" in the labor market, a moderation in wage gains and a change in how quickly workers bounce around point towards the central bank making progress on this goal. And in bringing inflation back to its 2% target.
Read more: What the latest Fed rate hike plan means for bank accounts, CDs, loans, and credit cards
"While wage inflation remains above the 3 to 3.5% level that we judge to be more consistent with the Fed’s two-percent target," Bank of America wrote, "the moderation of wage inflation should limit upside risks to price inflation."
Read the latest financial and business news from Yahoo Finance