Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / Job Openings Surge While Hiring Stays Sluggish
Transcript
- Lucas: So the April JOLTS report came out earlier this month, and the headline number is pretty striking: job openings shot up to 7.6 million. Luna: That's a big jump from March, right? I think that was around 6.9 million. Lucas: Exactly. March was revised down slightly to 6.89 million, so April's 7.62 million represents a nearly eleven percent increase in just one month. That's the highest level since January. Luna: So more jobs are available, but hiring hasn't really picked up. The unemployment rate is still at 4.3 percent. Lucas: Right. Nonfarm payrolls added about 172,000 jobs in April, which is solid but not enough to keep up with population growth. And the total number of hires actually ticked down slightly. So you have this disconnect: more vacancies, but not more filling of those vacancies. Luna: What do you think is going on? Are employers being too picky, or are workers not interested in the jobs being offered? Lucas: Probably a bit of both. Average hourly earnings rose to $37.50, up three percent year-over-year. That's above inflation, but still not enough to lure people back into some of the lower-paying sectors. And there's a geographic angle too. A recent CNBC article pointed out that Nevada is one of the hottest job markets right now. Luna: Yeah, I saw that. The headline was something like 'Struggling to find a job? Try looking in Nevada.' It makes sense with the leisure and hospitality rebound out there. Lucas: Exactly. But for the national picture, the JOLTS data is really puzzling the Fed. You have job openings high, wage growth modest, and inflation still sticky. Core PCE is running at 2.6 percent year-over-year as of April. The Fed's effective rate is 3.63 percent. So real rates are barely positive. Luna: And the new Fed chairman, Kevin Warsh, just had his first FOMC meeting last week. They held rates steady, which was expected. But the statement noted that the labor market remains 'tight' but 'not overheating.' Lucas: Right. 'Tight but not overheating' is a careful phrase. It suggests they see slack but also some wage pressure. I think the key is the quits rate. That's been falling. In March it was 2.1 percent, down from 2.3 a year ago. When workers quit less, it usually means they're less confident about finding another job. That's a counter signal to the high openings. Luna: So you have high openings but low quits. That's a strange combination. Normally high openings would encourage people to jump ship. Lucas: Exactly. It suggests that the openings might be concentrated in sectors that don't match the skills of available workers. Structural mismatch. Or maybe the jobs are in places people don't want to move to. The quits rate tells us about worker confidence, and it's weakening. Luna: And initial jobless claims just came in at 226,000 for the week of June 13. That's low historically, so layoffs aren't the issue. Lucas: No, layoffs are minimal. The problem is on the hiring side. Companies are posting jobs but taking forever to fill them. The average time to fill a position is now over 40 days, up from about 30 pre-pandemic. Luna: Why would they do that? If you need someone, why not hire faster? Lucas: A couple of reasons. One, employers are being more selective because they got burned during the Great Resignation when people quit quickly. Two, wage expectations have risen, so they're trying to hold out for someone who will accept their offer. Three, there's genuine uncertainty about the economy. With the fed funds rate at 3.63 percent and inflation still above target, no one knows if we're heading for a recession or a soft landing. Luna: So it's like a waiting game. Employers wait for the perfect candidate, workers wait for the perfect offer, and the whole thing freezes up. Lucas: Yeah, that's one way to put it. The labor market is less fluid than it was a year ago. And that's a concern for the Fed because if hiring stays sluggish, wage growth could slow, and consumption might weaken. But if openings stay high, it could keep upward pressure on wages in certain sectors. Luna: So what does Warsh do? He's got this weird signal. Lucas: He's in a tough spot. The 10-year breakeven inflation rate is at 2.25 percent, which is close to the Fed's target. So bond markets are saying inflation will moderate. But core PCE is still at 2.6. If the labor market stays tight, he might have to hold rates higher for longer. But if hiring falters, he might need to cut. The JOLTS data doesn't give a clear direction. Luna: This is exactly the kind of thing that makes the macro picture so hard to read. Every data point seems to have two possible interpretations. Lucas: That's why we do this show, honestly. To try and make sense of it. And look, we're able to do it without any ads, thanks to a small group of listeners who chip in through buy me a coffee dot com slash fexingo. If you've found these conversations useful, that's what keeps them going. No pressure, just a genuine thank you to those who already support us. Luna: Absolutely. It means we can spend time digging into numbers like the quits rate and job openings without worrying about sponsors. So thank you. Lucas: Alright, back to the puzzle. One thing I'm watching is the relationship between job openings and the Fed's rate path. Historically, when openings are this high relative to unemployment, the Fed tends to keep rates elevated. The ratio of openings to unemployed workers is about 1.2, which is above pre-pandemic levels. Luna: So that argues for no rate cuts soon. Lucas: Right. But if you look at the hires to openings ratio, it's falling. That suggests firms are having trouble filling roles, which could eventually lead to lower output. The Fed might see that as a drag on growth and consider easing. Luna: It's almost like you need a new metric to capture this dynamic. Something that combines openings, hires, and quits into a single 'labor market friction' index. Lucas: That's a great idea. Actually, the Atlanta Fed has a 'labor market spider chart' that tracks multiple indicators. But no single number captures this. For now, we're stuck with conflicting signals. And the bond market is reflecting that confusion. The yield curve is still inverted, with the 2-year at 4.22 and the 10-year at 4.45. That's a classic recession warning. Luna: But we haven't had a recession. GDP growth in Q1 was 1.6 percent annualized. Not great, but not negative. Lucas: Exactly. So either the bond market is wrong, or the recession is delayed. That's the million-dollar question. And the labor market is at the center of it. If job openings start to fall while hiring stays weak, that's a bad sign. If openings stay high and hiring picks up, that could mean the economy is reaccelerating. Luna: So we're really waiting for the May JOLTS data, due out next month. That might clarify the trend. Lucas: Absolutely. One month is noise, two months is a trend. If May shows another jump in openings with no pickup in hires, then we have a genuine puzzle. If openings moderate and hires increase, that's more consistent with a healthy labor market. Luna: And in the meantime, Warsh and the FOMC will be parsing every word of every speech for clues. Lucas: For sure. Next week we've got several Fed speakers scheduled. I'll be watching to see if anyone mentions the JOLTS data specifically. If they start talking about 'labor market frictions' or 'mismatch,' that tells you they're worried about the structural side. Luna: And if they focus on the low quits rate as a sign of worker confidence, that's a different story. Lucas: Exactly. The quits rate is really the underrated metric here. It's fallen from 2.3 to 2.1 over the past year. That's a meaningful drop. Workers are staying put. That could be because they're happy, or because they're scared. Given the headlines about geopolitical uncertainty and the Iran situation, I'd lean toward scared. Luna: That makes sense. If people are worried about the economy, they're less likely to take risks. And that could be feeding into the sluggish hiring dynamic too, if employers sense that workers are more amenable to staying, they might feel less urgency to fill roles. Lucas: Right. It's a self-reinforcing cycle. And that's what makes the macro environment so tricky right now. We'll keep tracking it. For next episode, I want to look at the consumer side. Retail sales data for May comes out next week, and that might give us a clue about whether consumers are starting to pull back. Luna: Sounds good. Until then, keep an eye on those job openings. Lucas: Will do. Thanks for listening.