Axios Macro

The job market is returning to a familiar place: strong, but no longer in its overheated, pandemic recovery state.

Why it matters: Those COVID-19 distortions had great benefits for workers, with plentiful job opportunities and booming wage gains. For the Fed, the out-of-whack dynamic fueled inflation.

• But now, the labor market looks more reminiscent of pre-pandemic times, with sustainable conditions appealing to both American workers and central bankers.

What's new: Key indicators released this week support that conclusion.

• The latest is ADP's employment report, which shows job growth coming off a boil. Private-sector employment increased by 177,000 in August, a notable slowdown from the 324,000 gain the prior month.
• The rate of people voluntarily quitting their jobs — an indicator of workers' confidence in their job market options — fell to pre-pandemic levels in July, according to data out yesterday.

What they're saying: "This is a month where we saw the hiring that has defined the post-pandemic recovery go from exceptional to sustainable," ADP chief economist Nela Richardson said on a call with reporters this morning.

• The data "really does represent a pivot back to normal — normally strong instead of abnormally strong," Richardson added.

Between the lines: The Great Resignation was one of the more high-profile labor market trends, one that suggested a hot labor market triggered unprecedented job-switching rates.

• That is officially in the past, as the quits rate fell to 2.3% in July, returning to the rate seen in February 2020, according to the Job Openings and Labor Turnover Survey (JOLTS).
• In the leisure and hospitality sector, the poster child of the "quits boom," workers are quitting at a slower rate than before the pandemic.
• Hiring, as measured by JOLTS, happened at a rate more in line with pre-pandemic trends. Layoffs remain at low levels consistent with the pre-COVID labor market.

Yes, but: Other indicators point to a labor market where demand for workers still outnumbers supply of them relative to pre-pandemic times, though to a lesser extent than in 2022.

• For instance, there are 1.5 open jobs for every available worker, down from the peak of two open jobs seen in March 2022.

The intrigue: "We can't go all the way back to the 2019 labor market when we have 2023 interest rates. That's going to determine hiring to a certain extent," Richardson said. She noted interest rate-sensitive sectors like financial services where hiring is flat.

What's next: The government payrolls report, out Friday, is expected to show the economy added 170,000 jobs in August — the fewest since December 2020.

A revision of second-quarter GDP numbers contains two pieces of good news for anyone hoping for an economic soft landing.

Driving the news: The economy expanded at a 2.1% annual rate in the April through June quarter, the Commerce Department said this morning, not the 2.4% initially estimated.

• More noteworthy, gross domestic income, an alternate measure of economic growth, showed an even more modest expansion. It rose at only a 0.5% annual rate in Q2, implying growth well below the long-term trend.

The intrigue: The Fed aims to bring down inflation through a period of growth below the long-term trend, which Fed officials think is something like 1.8%.

• As measured by GDP, it just isn't happening. The third quarter, currently about two-thirds complete, looks likely to be the fifth straight of above-trend growth.
• GDI, which in theory should track with GDP, is showing the opposite, with below-trend growth for three straight quarters. Indeed, it is slightly negative over the last year, down 0.5% from Q2 2022.

A common way of splitting the difference is to average the two measures in hopes of capturing the underlying growth trajectory of the economy. That shows 1% growth over the last year, within the sweet spot the Fed is aiming for — below-trend but non-recessionary.

The bottom line: The income numbers, combined with the latest GDP revision, can give some ammunition to Fed officials who believe it's time to be done with interest rate hikes.