Finding a job now is harder than any time since the pandemic. Bad omen for the economy?

By Jeffry Bartash

Weakening labor market has alarmed the Fed

How bad is the jobs market? Even job recruiters have been struggling to keep their own jobs, never mind finding work for others.

Rust Belt Recruiting, a small Midwestern business, just put out an ad for a job recruiter to fill an open position. The company got more than 100 resumes.

"That's a lot of job recruiters looking for a job," said Taylor Evans, president of the company.

Millions of Americans can sympathize. They say it's the toughest time to find a job in at least three years.

The erosion in what had been the strongest labor market in modern times has accelerated rapidly since earlier in the year.

The worries have grown so much the Federal Reserve cut interest rates last week for the first time since 2020 to prevent further deterioration in the labor market. If unemployment gets much worse, a recession could threaten the economy.

The warning signs are everywhere:

The unemployment rate has risen to 4.2% from a cycle low of 3.4% just a year and a half ago.Job creation each month has fallen to the lowest level since 2019 if the pandemic years are excluded.Job openings have tumbled by 37% since early 2022 and returned close to pre-pandemic levels.The number of people collecting unemployment benefits has risen steadily from a 42-year low in 2022 and is now above 2019 levels.

The latest survey of consumer confidence underscores the difficulty in finding employment.

Each month Americans are asked if jobs are "plentiful" or "hard to get." The difference between these two readings in September was the smallest since early 2021. That's a bad omen.

A survey of job seekers by ZipRecruiter tells a similar story. The share of people who said their job search was going poorly rose to 43% in the third quarter and hit the highest level since the survey began in 2022.

Businesses aren't exactly slashing jobs, Evans noted, but they aren't hiring many workers, either. "It just creates this stagnation in the labor market," he said.

The dramatic shift in the jobs market is a far cry from a few years ago.

Businesses were forced to offer sharply higher pay and benefits after the pandemic in the scramble to rehire workers amid arguably the worst labor shortage in U.S. history.

Workers took advantage of their newfound leverage to quit in record numbers, leaving lower-paying jobs for better-paying ones.

Most of the leverage is now gone.

Far fewer workers are quitting each month because they are not sure they will quickly find another job. As a result, job quitting has dropped below pre-pandemic levels.

The stress in the labor market has put the Fed on full alert.

After a few years of fighting the worst bout of inflation since the 1980s, the central bank has shifted its focus to keeping the unemployment rate low.

Fed Chairman Jerome Powell has vowed to do whatever it takes to keep the labor market from getting any weaker. By lowering borrowing costs, the Fed aims to boost the economy and maintain or increase the current demand for labor.

How well the economy performs will depend on what happens in the labor market. Inflation has cooled and returned close to the Fed's goal of 2% target, giving the bank the leeway to shore up employment.

That might make it easier for Americans to find a job, but probably not for several months or even longer. Lower interest rates take time - up to a year - to fully work their way through the economy.

What will give the Fed and the economy some cushion is a surprisingly low level of layoffs. Companies aren't eager, as it turns out, to fire workers who were hard to hire in the first place.

Just look at jobless claims. The number of people applying for benefits each week has fallen since midsummer and is at rock bottom.

So keep an eye on initial jobless claims. It's often the canary in the coal line.

Jobless claims are the "key indicator to watch," Bank of America economists said in a note. "As long as they remain low, the base case will likely remain a soft landing [no recession]."

-Jeffry Bartash

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09-25-24 1449ET

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