“The labor market is no longer the significant source of inflationary pressure that it was,” says Jeff Schulze, head of economic and market strategy at ClearBridge Investments.

There is no need to panic. The job market still is solid, although it no longer is overheating. Even so, the Fed is eager to prevent a deeper slowdown that could bring significant job losses, and possibly a recession.

The Fed lately has begun to focus more on the maximum-employment side of its dual mandate, after addressing the price-stability side by fighting inflation with higher interest rates. Fed officials are considering pre-emptive interest-rate cuts—as soon as their September policy meeting, based on futures-market pricing—to achieve a so-called soft landing.

Several Fed policymakers recently noted that labor supply and demand are in better balance today than in the past few years. “Employment growth is not excessive when accounting for immigration, nominal wage growth is near the rate consistent with price stability, the unemployment rate is close to what is thought of as its long-run value, the job vacancy rate is near its prepandemic level, and the involuntary layoff rate has held steady at 1% for over two years,” Fed Gov. Christopher Waller said on July 17. “In terms of the employment leg of the dual mandate, we may well be able to achieve the soft landing.”

Here are six charts that illustrate where the U.S. labor market is moderating.

A lower ratio of job openings to job seekers suggests the labor market is in better balance today than a year ago. Fewer employers are struggling to fill open positions, as they were in the aftermath of the Covid-19 pandemic. Still, the number of openings remains above the number of workers, meaning it is a job seeker’s market.

The Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, or JOLTS, shows the number of unfilled positions on the last business day of each month. The total, which never exceeded 8 million before 2021, peaked above 12 million in 2022. As of the end of May, there were 8.1 million job openings in the U.S.

That put the ratio of unfilled job openings to unemployed workers at 1.3, down from more than two at the end of 2022. June JOLTS data will be published on July 30.

The weekly number of first-time filers for unemployment insurance has been creeping higher since the start of the year. It is another sign that the U.S. labor market is gradually cooling.

The four-week moving average of initial claims hit 235,500 after the week of July 20, up from just over 200,000 at the beginning of 2024. Continuing claims held near 1.9 million during the same period, the highest level since November 2021 and above 2019 levels.

Investors, economists, and the Fed pay close attention to claims data. They can be noisy and influenced by short-term factors—Hurricane Beryl might have caused a spike in initial claims in Texas during the week ended July 13, for example—but are also seen as a leading indicator of the direction of the labor market. Right now, the course of travel is toward softening conditions.

Around 1.5 million of the 7.2 million unemployed workers in the U.S. labor force in June had been without a job for at least 27 weeks. Both the number of unemployed and “long-term unemployed” have been rising this year, a sign that softness is building beneath the market’s surface. 

Workers out of a job for a long time miss out on gaining experience and other skills, and may find it harder to re-enter the workforce. And, the longer people are unemployed, the more likely they are to curtail their spending. More long-term unemployed workers could exert a drag on the economy, potentially leading to more job losses.

U.S. nonfarm payrolls rose by 206,000 in June, a healthy pace, but with 58% of those gains concentrated in just two sectors: healthcare and government. That comes as government recruiting is running out of steam, with fewer open positions and less money to spend. 

Employment in the private sector increased by only 136,000 jobs in June, with growth largely anemic beyond healthcare and social assistance. Leisure and hospitality, a sector that added 333,000 jobs in the first half of last year, saw just under 100,000 net gains during the same period this year. Meanwhile, manufacturing jobs slipped by 8,000 last month, and retail by 8,500.

One of the weakest spots in the June jobs report was the number of temporary jobs, which posted a decline of 49,000. A big contraction in temp help has historically been seen as a leading indicator of labor-market weakness, as temp workers are often the first to go when a company downsizes. Temporary employment has been on a steady decline since early 2022 but June marked the largest monthly loss in the past two years.

“The labor market has largely rebalanced from a demand-and-supply perspective,” EY Chief Economist Gregory Daco says. 

One of the most visible signs of the recent labor-market softening has been the steady rise in unemployment. The U.S. unemployment rate ticked up to 4.1% last month, from 4% in May, and is up from a historical low of 3.4% in April 2023. In June, rising unemployment narrowly missed triggering the so-called Sahm Rule recession indicator. It posits that a recession has begun once the three-month moving average of the unemployment rate exceeds its low from the prior year by at least half a percentage point. 

Some of the recent increase in the unemployment rate likely has been driven by labor-force expansion, led by immigration, says Claudia Sahm, chief economist for New Century Advisors and creator of the Sahm rule. But there are also “garden variety” unemployment increases occurring, as well, Sahm says. Thus, the rising unemployment rate can’t be disregarded. 

U.S. Bank Chief Economist Beth Ann Bovino tells Barron’s she expects to see the unemployment rate continue to tick up, although “not dramatically so.”

Payroll data have been revised significantly in the past six months, with the Bureau of Labor Statistics eliminating about 250,000 of the job gains initially reported.

The employment statistics agency publishes an initial estimate of payrolls that is then revised twice, and subsequently held constant until the BLS undertakes its annual benchmarking process. 

From 1979 to 2003, the average monthly revision was about 14,000 additional jobs. Last year, the BLS revised down monthly payroll gains by about 30,000, on average. This year, downward revisions have averaged 49,000 a month. Most recently, payroll estimates for April and May were revised down by a combined 111,000, making hiring trends in those months look considerably weaker than initially reported.

Downward revisions typically aren’t a sign of a healthy labor market. Significant shifts in the payroll data can also make it challenging to parse labor trends. After incorporating the latest revisions, job growth averaged nearly 267,000 a month in the first quarter. Average payroll gains slowed to just over 177,000 in the second quarter, although there are likely more revisions in store. 

If the labor market continues to cool, the U.S. might experience monthly job growth of only 100,000 jobs before the end of the year, according to Dante DeAntonio, senior director at Moody’s Analytics.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com and Megan Leonhardt at megan.leonhardt@barrons.com