This time is different.
No, seriously. It is. The question is whether it’ll stay different.
The much-maligned “soft landing” crowd (descendants of the “transitory” cult, most of whom went extinct more than a year ago) have been right about one thing: The trajectory of job openings supports the notion that the US labor market, and thereby wage growth, can normalize without a big jump in the unemployment rate.
If you assume labor market balance and more moderate wage growth are the keys to services sector disinflation, then the soft landing narrative is alive.
Whether any “landing” really is “soft” is almost beside the point. What’s important is that we’re currently witnessing something that’s never happened before, and going strictly by the number of job openings that still existed across the economy on the last business day of March, there’s still quite a bit of runway (to employ yet another aeronautical metaphor).
“It is hard to overstate how unusual the recent experience has been,” Goldman’s Jan Hatzius wrote, in a new note.
The macro-obsessed among you will probably be more interested in the figure on the left, above, but for the rest of you, the chart on the right is easier on the eyes. Job openings continue to drop versus the peak, but the unemployment rate hasn’t budged. In fact, it just moved back to a 70-year-low.
“In the entire postwar period, there has never been a decline in the job openings rate as large as what we have seen over the past year that was not accompanied by a recession and a large rise in the unemployment rate,” Hatzius went on to say, adding that while “many economists take this observation as a sign that the worst is yet to come,” Goldman’s view is that it’s “a sign that this cycle is different.”
Quick thoughts
– Pre-Covid labor force 165MM
– Covid erased around 20-30MM jobs, but that all came back.
– Covid erased around 6MM from labor force, permanently or semi-so. Early retire 3MM, Covid death working age 0.3MM, Covid disability 2MM??, lifestyle change, migration barriers.
– Job opening percent (JO) and ratio of job opening to unemployed (JO/UE) went to levels never seen before. JO 8%, JO/UE 8.0/3.5 = 2.30.
– At “unprecedented” high JO, the Beveridge curve is vertical. Makes sense, because UE has a lower bound, it can’t be zero or even 1% (even during WW2, UE was 1.3%). People between jobs, not seriously looking, looking but unemployable. So UE is insensitive to JO and JO/UE goes straight up.
– When JO/UE gets down to “precedented” levels – e.g pre-Covid we saw 5.0/4:0 = 1.25 and 4.5/3.5 = 1.30 – maybe the prior relationships (the curve) can work again. After another 1-2 ppt decline in JO, we’ll get to find out.
Interesting numbers (and comments in general, so thanks) but that 3MM early retirees and 2MM long COVID ‘disabled’ feel very much like people who might decide to re-join the workforce depending on their financial situation.
With higher rates affecting (negatively) the value of all assets and government largesse a thing of the past, plus inflation – it seems a fair few ought to re-join the workforce…
I read, not that I’d know mind you, that retired persons have different spending patterns than working persons, and may be affected differently (less?) by inflation.
Any comments by those retired persons among us?
Don’t look now, but if employment and inflation continue to ratchet down–and particularly if core inflation were to begin to budge–Powell and the Fed may pull-off the best landing since Ted Striker in the movie “Airplane.” Of course, the debt ceiling and/or Vladimir Putin (or any other number of things) could easily upend that. Dare we hope?
…there’s a big line at the airport waiting to pull the light plug out…
My daughter and her husband both got laid off from their nice six-figure tech jobs, one in Jan, one in May. A couple of days ago my daughter said they have done a bit of adjusting and determined that one of them will need a job by the end of Oct, but they won’t need to touch their savings. They are just messing with their severance benefits and enjoying their child. I suspect they are not alone.