An Inflection Point in the Labor Market?May 26, 2022
As everyone knows, the labor market has been quite strong, with expectations for the unemployment rate to fall further next week. Much has been made of the relationship between job openings and unemployed people that are in the labor force. The ratio of job openings to unemployed workers is almost 2x, a level far above anything we’ve ever seen before.
JOLTS data, which is the source for job openings, is relatively stale data. As of this writing, we are still working with March job opening data. Has anything changed in the last couple months to change this trend? We try to answer this question by looking at some market oriented stats that tend to have a good relationship with job openings.
First, breakeven inflation has rolled over. The extent to which the 5-Year US Treasury breakeven inflation rate has fallen suggests a real-time range of 10-10.5 million, some 1-1.5 million below March’s data.
Second, the Human Resources sub-industry in the S&P 500 is down some 30% since its January peak. As one would imagine, the HR industry is a pretty good leading indicator of job openings since they make more money the more jobs they fill.
Third, the latest (April) reading on small business opinions about it being a good time to expand plunged back to pandemic lows. This indicator is a measure of the health of small business. And, given the recent plunge, it would appear small business is likely to be partly responsible for the looming drop in job openings.
The labor market is no doubt still red hot, but leading indicators suggest we may be past peak labor strength which, from the Fed’s perspective, is progress. If wages continue to grow at a decelerating rate while job openings decline, the Fed may be in a place this fall to re-evaluate its policy stance.