‘Normal’ Still Elusive In US Labor Market

Good news: There are less available jobs in the world’s largest economy.

That doesn’t sound like a positive development, but in the current conjuncture, defined as it is by a historic mismatch between job openings and workers willing (or qualified) to fill them, it’s a step in the direction of “balance.”

Or at least that’s the Fed’s narrative, and if you’re a market participant, that’s the only narrative that matters.

Job openings fell to 10.334 million on the last business day of October (figure below), closely watched data released on Wednesday showed. That was actually more openings than economists expected, but not by much, which means traders were likely to focus on the direction of travel not the relatively disappointing size of the decline.

Hires were the fewest since January of 2021. The figures were released shortly after ADP data for November showed private sector hiring was the slowest in November since early last year.

To be sure, the headline JOLTS print was a relief. The last two reports combined to give traders whiplash. A sharp decline in openings on the last business day of August was followed by an unexpected increase in openings the next month. Effectively, the “soft landing” narrative was resurrected, only to die again four weeks later.

That’s the fraught context for Wednesday’s decrease, marked by the red arrow in the figure (below).

A quick scroll through the breakdown showed no change in leisure and hospitality openings (which are obviously very high) and a large drop in unfilled manufacturing positions.

At more than four million, quits remained very elevated, but were nevertheless the fewest since May of 2021 (figure below). The quit rate, at 2.6, was likewise the lowest in 17 months.

Obviously, both remain far from levels consistent with any kind of “normality.” The latest prints would be records outside of the pandemic context — and it wouldn’t be close.

Quits are still pervasive in leisure and hospitality, where wage growth for job switchers is still very high. 869,000 people quit a job in the sector last month, more than September.

Layoffs and discharges were little changed, and remained near record lows. Suffice to say many employers are still desperate to retain workers, despite the proliferation of hiring freezes and layoffs in the tech sector.

The usual boilerplate background information applies. The soft landing narrative still relies heavily on the idea that as the Fed raises rates and the economy slows, employers will dial back hiring plans, resulting in fewer job openings and a less acute mismatch between open positions and constrained labor supply.

Those hoping for a more dovish Fed are very keen to see more declines in job openings, and commentary from management during Q3 reporting season almost uniformly suggested companies continue to exercise caution on hiring. That still isn’t translating into large declines in openings, though.

The yawning disparity between open positions and workers willing to fill them will keep upward pressure on wages, and thereby ensure the risk of a wage-price spiral remains on policymakers’ radar, even as Fed officials habitually insist they see no evidence of such a dynamic. (I honestly don’t know how they can say that in public, with a straight face, and I’m hardly an incorrigible Fed critic.)

Jerome Powell is still clinging to some version of the narrative that says Fed tightening can render millions of job openings superfluous, thereby reducing labor market friction, cooling wage gains and short circuiting the wage-price spiral, all without too many people losing a job they currently hold. The likes of Larry Summers and Olivier Blanchard think that’s exceedingly unlikely.

Wednesday’s data was, at best, incremental progress. At worst, it underscored the notion that the labor market, like housing, is intractably distorted, and that only a deep recession can resolve the quagmire.