The JOLTS reports and new data coming out this week will give us more information about the labor market, which is one of the biggest mysteries of the moment. How long can it continue to be that strong?
The Labor Department, which provides hiring and quit figures in the JOLTS report on Tuesday and September employment data on Friday morning, is driving the story.
What to watch: When discussing the overheated labor market, Federal Reserve Chair Jerome Powell often refers to the ratio of job opportunities to jobless people.
According to last month’s data, two jobs were available for every jobless individual. But it was just for July.
Indeed.com job posts have subsequently declined, according to Nick Bunker, the site’s senior economist. Indeed.com focuses in-depth on the retail industry in a study released on Monday, which has experienced some slowdown in recruiting but not much in the way of layoffs. Bunker speculated that this may be the legendary “soft landing” some people still speak about.
“It’s uncertain if this might happen in the whole job market,” he added. “However, it’s worth noticing.”
JOLTS Report: Cracks are Beginning to Develop in the US Labor Market.
The Fed may be watching poorer employment situations than headline numbers imply.
The link between job opportunities and the number of jobless persons had been a significant indicator of labor market tightness, with the former outnumbering the latter by a factor of 2.0 to one.
It’s commonly remarked that a significant danger in a monetary policy tightening cycle is that the Federal Reserve raises interest rates until something “breaks.” This begs the issue of how far the Fed will now go to combat rising inflation.
One of the reasons suggested for the central bank’s present aggressiveness is the strength of the US labor market and the potential for this to contribute to inflation.
However, a closer analysis reveals that there may already be some strain in the labor market that is not being detected by typical headline metrics such as payroll growth and the unemployment rate or the JOLTS report.
Increase in Multiple Job Holders
The “establishment survey” provides the headline payrolls statistic each month when the Bureau of Labor Statistics issues its US employment data. According to the poll, 315,000 jobs were gained in August, which was impressive but much behind the previous month’s 526,000. Of all, measuring payrolls only estimates the number of jobs produced; it does not assess unemployment.
That is where the US household survey comes in, from which the unemployment rate is computed. It’s a poll of household members; therefore, it counts individuals and whether they’re employed or not.
The growth of numerous job holders is a recent trend detected by the household survey. If one individual takes on a second or, God forbid, a third job for economic reasons, that person is still recorded as one employed person in the household survey. However, it’s feasible that extra employment will be identified as separate payroll jobs in the establishment survey.
Full-time Job Holders Reduce
The dropping number of full-time jobs and the extreme shift upward in part-time employment is another evidence of underlying fissures in the labor economy. On the surface, the August household survey employment growth of 442,000 looked significant. However, part-time employees accounted for more than half of the total, declining full-time positions by 242,000. It was the third month in a row of reductions, totaling 465,000 throughout that time span.
JOLTS Report and Job Opportunities
Another thorn in the side of labor market data is the issue of job vacancies, with the most prevalent indicator coming from the Job Openings and Labor Turnover Survey (JOLTS) report. The link between job opportunities and the number of jobless persons has been a significant indicator of labor market tightness, with the former outnumbering the latter by a factor of two to one.
The issue is that the JOLTS report figures may exaggerate the amount of genuine individual job opportunities. An establishment’s “active recruitment” for employees is one of the conditions for a job opportunity. This may involve advertising, online notifications, signage, word-of-mouth “announcements,” contact with recruitment agencies, or setting up at a job fair or other comparable source of potential candidates.
Furthermore, the pool of labor available for such positions extends beyond jobless persons. Potential job switchers, who are included in the number of individuals employed, should also be viewed as possibly competing for those job opportunities. This shows that the labor market may be less tight than previously thought, which is supported by a recent St Louis Fed study.
The Fed has explicitly indicated that its objective is to reduce job vacancies without significantly raising the unemployment rate – a tight aperture in the needle it attempts to thread. However, the Fed also emphasizes the need for more restricted wage growth, which is robust by historical standards but still below the pace of inflation. This indicates that real wage growth is still negative.
The Decline in Average Weekly Hours Worked.
Another indicator of dwindling labor demand is the number of hours per week that employers require of their employees.
Despite the positive news on August payroll growth, there was another decrease in the workweek, which has been flat or down in five of the six months through August. At 34.5 hours, it is tied for the lowest figure since April 2020, when the pandemic lockdown was fully implemented. The decrease in hours worked was so severe that it caused the index of aggregate hours worked to fall for the first time this year.
With labor being the most expensive input cost for many businesses and economic growth and demand being poor, there are signs of labor market weakness likely to portend future deterioration. As the Fed has pointed out, it may be essential in the drive to tame the inflationary spike.
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Author Okoro Chinedu 
