Labor Market Strong, But Normalization Continues

The US labor market has remained relatively strong, but the trend over the last year or so has been one of normalization back to the pre-pandemic levels. One of the data series showing this normalization trend has been job openings. However, that series increased during the last two consecutive months of available data, in October and November of 2024, after hitting a cycle low of 7.4 million in September of last year. The September 2024 data was also very close but slightly below the pre-pandemic cycle high. Although this consecutive increase may be temporary noise in this series, which tends to fluctuate considerably, the fact that it is now much higher versus the pre-pandemic cycle’s high may be once again an indication that the labor market continues to surprise on the upside.

Job openings

At the same time, the current nonfarm payroll number continues to be extremely strong compared to the historical average even if it has also weakened considerably during the last year. Average monthly nonfarm payroll in 2024 was about 186,000, compared to a historical average of about 125,000 per month (if we include recessions in the calculation and 220,000 if we exclude recession periods) going back to 1939.

One of the reasons for this strength seems to be related to structural changes that have occurred with new business formations, which have skyrocketed since the pandemic recession and have not come back to pre-pandemic levels. We conducted several structural tests that showed, in fact, that there was a structural break in this series in 2020, but more specifically in April of 2020, which corresponds with the break in the series in the graph below. The Bureau of Labor Statistics calculates the number of jobs that will potentially be created by these new businesses and that seems to have increased the estimated contribution to new nonfarm payroll jobs coming from the ‘birth-death’ econometric models.1

Total business applications