Economics and markets

September labor market pulse: Hiring pace softens further

September 27, 2023

The labor market remains robust, with the demand for workers exceeding supply, but Vanguard’s proprietary data on enrollments in 401(k) retirement plans suggest that employers across all sectors are tapping the brakes on hiring.

A look at hiring trends through Vanguard’s lens

Our data on new hires as a percentage of existing employees stood at 2.2% in August 2023, indicating a further softening relative to the readings of 2.4% in July, 2.5% in June, and 2.7% in May. This metric stood at 3.5% a year ago.¹

The widely cited Job Openings and Labor Turnover Survey (JOLTS) of 21,000 establishments, published by the U.S. Bureau of Labor Statistics, also points to a slowdown from May through July (the most recent reading available).

“Vanguard’s hiring data provide an early look at labor market trends based on daily enrollments among roughly 5 million retirement plan participants,” said David Pakula, a Vanguard investment analyst. “We see this as a complement and potential preview to the national JOLTS data that will come out next week.”

Vanguard and JOLTS data show that hiring continues to soften

One line of the chart shows JOLTS hirings rate from April 2003 through July 2023. It begins the period at about 3.5% and varies after that with a notable dip during the global financial crisis and a spike in the COVID-19 recession. It finishes the period at 3.7% in July 2023. Another line which shows Vanguard’s hires rate begins the period at about 2.2% and is consistently below the level of the JOLTS hirings rate but rises and falls roughly in unison with it. An exception is during the COVID-19 pandemic when the JOLTS hirings rate spikes but Vanguard’s hirings rate drops sharply. Vanguard’s hirings rate finishes the period at 2.2% in August 2023.

Notes: Both hires rates refer to new hires as a share of existing employees. 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 last 12 months of the Vanguard hires series are adjusted upward to account for an empirically observed lag in 401(k) enrollment times for new hires. The series is seasonally adjusted using the X-13 ARIMA method. The data set represents a balanced sample of firms of all sizes across all sectors of the economy that offer retirement plans that Vanguard has administered since January 2003. The JOLTS hires rate is based on a nationally representative survey of 21,000 nonfarm business and government establishments. The gray bars indicate economic recessions.

Sources: Vanguard and the U.S. Bureau of Labor Statistics, as of August 31, 2023.

A closer look at four labor market sectors

Although hiring rates differ across industries, we observe a continual slowdown in hiring across the board. The figure below, which highlights four diverse sectors, shows that hiring in each subsector has declined on both a month-over-month and year-over-year basis.

“Employers may be pulling back on hiring in response to a slowdown in attrition but also as a way to limit labor costs in anticipation of slowing growth,” said Adam Schickling, a Vanguard economist. “Compared with last month, the slowdown in hiring is now more broad across all sectors.”

Media, entertainment, and leisure sector hiring has dropped the most on an annual basis, falling to 1.2% in August 2023 from 2.4% a year ago. The education and health sector has declined the least of the four sectors, edging down to 1.5% from 1.6% over the same period.

A decline in hiring can be seen across sectors, according to Vanguard data

Four lines show the hirings rates for 4 sectors: media, entertainment, and leisure; professional, business, and nonprofit services; manufacturing; and Education and health from January 2013 through August 2023. All four sectors show a decline in their hirings rates beginning around the end of 2021 through to the end of the period.

Notes: Hires rate refers to new hires as a share of existing employees. 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 last 12 months of the Vanguard hires series is adjusted upward to account for an empirically observed lag in 401(k) enrollment times for new hires. The series is seasonally adjusted using the X-13 ARIMA method. The data set represents a balanced sample of firms of all sizes across all sectors of the economy that offer retirement plans that Vanguard has administered since January 2003.

Source: Vanguard, as of August 31, 2023.

About Vanguard hires data

Vanguard’s proprietary hires data is rooted in real-world 401(k) retirement plan participant data.

It should be noted that Vanguard hires data do not capture the whole U.S. economy, since only roughly half of workers—a group disproportionately composed of higher-income workers—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.

1 We have made retroactive adjustments to the hires series based on three sources: 1) mergers and acquisitions activity between plan sponsors, 2) adjustments to plan participant information, and 3) differences between observed and predicted 401(k) enrollment lags among plan participants.