Perspectives : Markets & Economy | October 23, 2024

Labor market pulse: Hiring cools as the fall begins

According to Vanguard proprietary data, large U.S. employers are hiring at the slowest pace since June 2020, indicating a cooling in the broader labor market. The slowdown in hiring, combined with robust labor supply, has led to a higher unemployment rate and the Federal Reserve’s first rate cut since 2020. We expect this softening of the labor market to gradually dampen consumer confidence and real wage growth, resulting in below-trend GDP growth in the first half of 2025.

Slowdown in hiring continues

Vanguard’s proprietary data on enrollments in 401(k) retirement plans show that the hires rate—which refers to new hires as a percentage of existing employees among firms with over 250 employees—continued to slacken, dipping to 1.8% in August.

The U.S. Bureau of Labor and Statistics’ Job Openings and Labor Turnover Survey (JOLTS) report, adjusted to focus on firms with over 250 employees, shows a similar slowdown in hiring over the past two years.

“Aligning the two data series to focus on the same firm-size segment of the labor market allows for a more concise and practical comparison,” said Vanguard investment analyst David Pakula.

Although national figures on job losses and layoffs are still at historically low levels, lower hiring rates coupled with strong labor force growth have driven the unemployment rate higher, from 3.7% at the start of the year to 4.2% in August.

Vanguard’s labor economist Adam Schickling says that it’s important to understand what is driving the increase in the unemployment rate. “The U.S. has experienced higher-than-expected labor supply growth over the past two years,” said Schickling. “New entrants to the labor force generally have a higher unemployment rate because it takes time for them to find a job. This explains why the unemployment rate has risen over the past year even as job losses have not materially increased. It’s also important to note that this growth in labor supply has played a critical role in helping the Fed combat inflation.”

Vanguard data through August 2024 indicate the pace of hiring has slowed

Notes: The Vanguard hires rate is calculated at the firm level and is based on new enrollments in 401(k) retirement plans administered by Vanguard divided by the number of all active 401(k) plan participants in a given month. New hires are recorded based on their hire date rather than their retirement plan enrollment date. The series is seasonally adjusted using the X-13ARIMA-SEATS method and transformed into a three-month moving average. The dataset represents a rolling two-year sample of firms with greater than 250 employees across all sectors of the economy that offer retirement plans that Vanguard has administered since January 2003. Job Openings and Labor Turnover Survey (JOLTS) data are based on a nationally representative survey of 21,000 nonfarm business and government establishments. JOLTS is then adjusted to capture firms with greater than 250 employees. The two vertical bars indicate economic recessions, as identified by the National Bureau of Economic Research. JOLTS data are as of July 2024 and Vanguard data are as of August 2024.
Sources: Vanguard and the U.S. Bureau of Labor Statistics.

Strong labor participation among older workers

Vanguard's 401(k) data reveal another reason why U.S. labor supply has exceeded expectations and employers might want to take note—the share of Vanguard plan participant workers over the age 65 has climbed from around 2% in 2005 to almost 8% in August 2024. Vanguard estimates that this percentage will continue to climb and will likely surpass 10% by 2030 before gradually subsiding as the baby boomer generation continues to age. The current strength of the labor market and the considerable potential benefit to retirement assets have enticed many older workers to remain in the labor force past the traditionally defined retirement age of 65.

“If given the choice, some workers might prefer to work longer in order to increase their retirement assets,” said Pakula. “Research published by the National Bureau of Economic Research found that delaying retirement by six months is equivalent to saving an additional 1% of a worker’s pay over 30 years.”

Workers remaining in the labor force longer may see a benefit to their own economic situation, and their delayed retirement has implications for the broader economy. “As the nature of work has become less physically intensive and life expectancies have risen, more people are choosing to work well into their 70s,” said Schickling. “Industries planning their long-term labor needs will need to focus on both their talent pipeline of younger populations and their retention of older workers.”

The percentage of workers age 65 and over has roughly quadrupled in two decades

Note: The percentage of Vanguard plan participants over 65 in the workforce is calculated at the firm level and is based on enrollments in 401(k) retirement plans administered by Vanguard, as of August 2024.

Source: Vanguard.

About Vanguard hires data

Vanguard hires data do not capture the whole U.S. economy, since only roughly half of earners—a group disproportionately composed of higher-income earners—have access to employer-sponsored retirement plans. Moreover, employers that offer 401(k) plans tend to be larger, more mature, and concentrated in certain industries.

Contributors

Fiona Greig, Ph.D.
Senior Manager, Head of Multi-Asset Portfolio Management

Kelly Hahn
Vanguard Head of Retirement Research

Adam Schickling, CFA
Vanguard U.S. Senior Economist

David Pakula, CFA
Vanguard Investment Analyst

Note:

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