Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / Why Job Openings Are Surging While Hiring Stays Sluggish
Transcript
- Lucas: Luna, I keep coming back to the JOLTS data that came out a few weeks ago, and it's bugging me. Luna: The one showing job openings surging to 7.6 million? That was a big jump from March. Lucas: Exactly. We went from 6.9 million openings to 7.6 million in one month. That's a ten percent increase. But hiring barely moved. Nonfarm payrolls added only about 172,000 jobs in May, which is fine, but not commensurate with that spike. Luna: So companies are desperate for workers, but they're not actually filling the roles. What gives? Lucas: Well, one explanation is the skills mismatch. We've talked about this before, but it's worth revisiting because the data is getting sharper. The industries that are opening jobs — manufacturing, construction, healthcare — they need specific technical skills. Meanwhile, a lot of the people looking for work have backgrounds in retail, hospitality, or office admin. Luna: So it's not that there aren't enough jobs, it's that the jobs available don't match the workers available. That's a structural problem. Lucas: Right. And the ratio of unemployed workers per job opening has dropped below 0.8. Historically, when that ratio dips below 1, it's a tight labor market. But here we are with unemployment at 4.3 percent, which isn't extremely low. So something else is going on. Luna: Could it be that employers are posting jobs but not actually hiring because they're uncertain about the economy? I mean, with rates at 3.63 percent and the new Fed chair, there's a lot of uncertainty. Lucas: That's part of it. Kevin Warsh just had his first FOMC meeting last week. The statement was pretty hawkish, but markets are pricing in cuts later this year. So businesses might be holding off on committing to new hires until they see which way the wind blows. But here's the twist: the job openings themselves are a signal of intent. Companies wouldn't post them if they didn't think they'd need the labor eventually. Luna: So maybe it's a timing issue. They want to hire, but the search is taking longer because they're being pickier, or candidates are being pickier. Lucas: That's likely. Wage growth is still modest — average hourly earnings at 37 dollars and 50 cents an hour, up about 3.5 percent year-over-year. That's not enough to attract workers in a tight market, especially when inflation is still above 4 percent. Real wages are actually declining. So workers are holding out for better offers. Luna: Which creates this standoff. Employers want to fill roles but don't want to pay up. Workers want more pay but can't find the right openings. And the Fed is caught in the middle. Lucas: Speaking of the Fed, Warsh came in with a reputation as an inflation hawk. But the 10-year breakeven inflation rate has fallen to 2.25 percent, down from 2.26 a month ago. That's still above the Fed's target, but it's moving in the right direction. If that trend continues, it gives the Fed room to ease later this year. Luna: But if job openings stay elevated, won't that keep wage pressures up? And then inflation doesn't come down as fast. Lucas: Exactly. That's the tension. The JOLTS data is a lagging indicator in some ways, but it's also one of the best forward-looking signals for wage inflation. Right now, it's telling us that demand for labor is still strong, which means the Fed can't declare victory on inflation just yet. Luna: It's a tricky balance. And by the way, if you find these macro puzzles as interesting as we do, there's a simple way to keep this show going ad-free. A couple of dollars a month is genuinely what keeps these episodes coming. You can support us at buy me a coffee dot com slash fexingo. It makes a real difference. Lucas: Yeah, it really does. And we appreciate everyone who chips in. So, back to the labor market — one thing I think is underappreciated is the role of remote work in this mismatch. Luna: How so? Lucas: A lot of the job openings we're seeing are in industries that require in-person presence — manufacturing, construction, healthcare. But many job seekers, especially those who left the workforce during the pandemic, are now looking for remote or hybrid roles. So they're not applying to those in-person jobs, even if they're qualified. Luna: That makes sense. The data from the Bureau of Labor Statistics shows that job openings in accommodation and food services are up, but those jobs are hard to fill because they're in-person and often have irregular hours. Lucas: And the unemployment rate for that sector is actually below 4 percent, but the quits rate has come down. So people are staying put. They're not jumping for a new job unless it's a clear upgrade. That's another factor: the 'great resignation' is over, but the 'great reluctance' has taken its place. Luna: Great reluctance — I like that. So we have a labor market that's tight in terms of openings, but not in terms of actual hiring or wage growth. That's a weird middle ground. Lucas: It is. And it's one reason why the GDP growth numbers look okay — real GDP grew at 1.6 percent annualised in Q1, up from 0.5 percent in Q4. But that growth is being driven by consumer spending and government outlays, not by a booming labor market. Luna: So the economy is growing, but the jobs engine isn't firing on all cylinders. That's not a typical recovery. Lucas: No. And it puts the Fed in a tough spot. If they cut rates to stimulate hiring, they risk reigniting inflation. If they hold steady, the labor market might stay in this twilight zone of high openings but low hires. Luna: What's the one thing you'd watch for in the next few months to see which way this breaks? Lucas: I'd watch the quits rate. If it starts to tick up again, that means workers are confident enough to leave their current jobs for better ones. That would signal that the labor market is genuinely tightening, and we'd likely see faster wage growth. If it stays flat or declines, then the current standoff continues. Luna: And that would keep the Fed on hold, I imagine. Lucas: Probably. Warsh has made it clear he's not in a rush to cut. The minutes from his first meeting will be out in a couple of weeks — that'll give us a better sense of the committee's thinking. Luna: Alright, something to look forward to. Thanks for breaking this down, Lucas. Lucas: Always a pleasure.