Despite an unexpectedly strong May jobs report, estimates from the National Federation of Independent Business suggest that the labor market might be on its way to cooling down. NFIB’s compensation plans index fell to 25% from its peak in December 2021; in other words, business owners, in aggregate, plan to increase wages by 25% in the next year—still a lot, but considerably lower than their plans just a few months ago. At the same time, the labor quit rate (which counts the number of workers voluntarily leaving their job for another job) appears to also be coming off its peak. This indicator suggests that workers are increasingly satisfied with their job and are not seeing as many opportunities in the labor market as they had before. These metrics, from both the supply and demand side of the labor market, suggest that the historically strong labor market might be reaching an inflection point and beginning to weaken. All things considered, this cool-down might be welcome news for central bank policymakers seeking to tame wage-push inflation.
Sources:
Renaissance Macro Research https://twitter.com/RenMacLLC/status/1532418171042406400
Bureau of Labor Statistics - https://www.bls.gov/news.release/jolts.t04.htm
Thomas Triedman, a sophomore at Yale, is a Summer 2022 Collegiate Associate at the Manhattan Institute
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