David Gurley Jr.’s bank account benefited from a hot pandemic labor market. Mr. Gurley, a video game programmer, switched jobs twice in quick succession, boosting his salary and nabbing a fully remote position.
By late last year, he was worried that a pullback in the tech industry could make his job precarious. But when it comes to the outlook now, “it seems like things are more or less OK,” Mr. Gurley, 35, said. Opportunities for rapid wage gains are not as widespread and some layoffs have happened, but he feels he could find a job if he needed one.
Mr. Gurley’s experience — a rip-roaring labor market, then a wobbly one and now some semblance of normality — is the kind of postpandemic roller-coaster ride that many Americans have encountered. After breakneck hiring and wage growth in 2022 and 2023, conditions have moderated. Now economic officials are trying to figure out whether the labor market is settling into a new holding pattern or is poised to take a turn for the worse.
The answer will be pivotal for the future of Federal Reserve policy.
Central bankers spent 2022 and 2023 focused mainly on wrestling rapid inflation under control. They have left interest rates unchanged at 5.3 percent for more than a year now and are likely to keep them there at their meeting this week, making money expensive to borrow in a bid to restrain consumer demand and weigh down the overall economy.
But now that inflation is returning to normal, officials are again concentrating keenly on their second major goal: maintaining a strong job market. They are trying to strike a careful balance in which they fully stamp out inflation without causing unemployment to spike in the process.
The labor market still looks solid. Joblessness is low by historical standards, and claims for unemployment insurance have stabilized after moving up earlier this year. A fresh jobs report set for release Friday is expected to show that employers continued to hire in July, albeit at a slower pace.
But policymakers are increasingly attuned to the possibility that conditions could deteriorate quickly, because weaknesses have begun to surface. Job openings have come down sharply, part-time employment is up, fewer companies are turning to temporary help to fill gaps and fewer workers are job hopping.
Anecdotally, Americans report that it is harder to find a position, and surveys suggest that they have become slightly more worried over the past year about losing a job and struggling to find a new one.
Central bank officials have made it clear that they would cut rates more urgently if they saw unexpected signs that the job market was weakening. For now, Fed officials are proceeding cautiously: They are widely expected to leave interest rates unchanged at their meeting Wednesday while gearing up for a possible rate cut in September.
“The good news is that the labor market is cooling rather than collapsing,” said Noah Yosif, chief economist at the American Staffing Association. “The bad news is that the cadence of the cooling is accelerating.”
Mr. Yosif said the organization’s members were conscious that there were fewer new opportunities for temporary work than at the height of what is often called the Great Resignation — the period between roughly 2022 and mid-2023 during which workers were rapidly shuffling between jobs.
Bill Kasko, head of Frontline Source Group, a staffing and placement firm in Dallas, also saw a slowdown late last year and in early 2024. Many of the employers he worked with feared that a recession was coming, and they pulled back on adding new workers out of caution.
But that is starting to turn around, he said. One client is looking for a high-ranking role in human resources — usually not a priority in a soft labor market — and other fields like financial analysis and sales are hiring again.
“It’s already looking like it’s going to be a fantastic month for August — it’s definitely back on,” Mr. Kasko said. “How long this lasts, I don’t know.”
Mr. Kasko says that what he is seeing is a situation where people hired rapidly for a few years after the depths of the pandemic in 2020, then retrenched and are now hiring at rates more similar to the ones that prevailed before the pandemic.
Employees themselves are asking for better benefits and higher pay, and when employers ask to hire someone in the $30,000-to-$60,000 range, “you just do not have a pool,” he said.
That lines up with official data: After years of rapid inflation, wages have also climbed as workers try to keep up with household bills. But pay growth has recently begun to slow, a sign that would-be workers may not have as much negotiating power as they did a few years ago.
The Beige Book, a Federal Reserve collection of anecdotal reports from business contacts around the country, reported this month that there were still shortages of some skilled workers, but that some employers “expect to be more selective on who they hire and not backfill all open positions.”
That means that it can be harder to clinch a new job than it was a year or two ago. Prospective hires can no longer fire off some résumés and have luck, said Nela Richardson, chief economist at the human resources and payroll company ADP.
“Networking is back in style,” she said. “Now you have to do a little more to find work.”
But even as job hunters report that it has become a bit tougher to land the perfect gig, most do not paint today’s backdrop as dire and hopeless.
Michael Duff, 63, has struggled to find a full-time magazine job over the past few years — a problem he attributes to age discrimination. But he is managing to cobble together freelance contracts, and says it still feels like “there is a lot of work out there.”
The overall picture that emerges, combining data, surveys and anecdotes, is one of a job market that is coming off the boil, but not one that is falling apart.
For the Fed, that’s a difficult image to assess. Interest rate policy works with a lag, so there is a danger that if central bankers wait to cut interest rates they could end up lowering them too late to stave off a job market slowdown.
“As we always say in economics, unemployment goes up like a rocket and down like a feather,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said in an interview on July 12.
On the flip side, if the labor market and broader economy begin to heat back up — as Mr. Kasko in Dallas is witnessing already — it could help to fuel a burst of consumer demand. If shoppers are willing to open their wallets, companies might have an easier time raising prices, and inflation could get stuck above the Fed’s 2 percent target.
While it has cooled substantially in recent months, inflation remains at 2.5 percent and has now been too hot for comfort for 39 straight months. Throw in broader trends like population aging and a shift away from globalization and there is a risk that inflation will be “more episodic,” bouncing around more than in the past, Ms. Richardson said.
And at the end of the day, Americans need both a solid job market and relatively stable prices to feel comfortable.
Mr. Gurley, the game programmer, noted that while his pay increases allowed his family to maintain its standard of living while putting two children through day care, some of his friends were on more fixed pay scales. Their income simply has not kept up with recent price increases.
“A lot of people really have been suffering,” he said. “I feel fortunate that we have not been among them.”