Truth Behind the 10 Million Job Openings
Job vacancies and non-farm payrolls tell the wrong story
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There are over 10 million job vacancies in America.
While that number has declined from its 2022 high, it appears quite resilient along with the overall labor market. Similarly, non-farm payrolls was almost double expectations, at 339k new jobs in May. And while it ticked up, the overall unemployment rate retains its 3-handle.
Is the job market really as strong as these numbers suggest?
Anecdotal information conflicts with the headline data.
I’ve heard many stories about job-seekers finding it tough out there. Data points beneath the big releases, imply an emerging story of a slowing labor market:
Initial and continuing jobless claims have risen steadily over the past year.
Average hourly earnings growth is declining.
Average hours worked is declining.
Overall labor market conditions are worsening.
Many labor market indicators are in decline, while job openings and non-farm payrolls surpass expectations.
Why the contradiction?
A couple thoughts…
Job openings is a misleading statistic and says nothing about the quality of available jobs and commitment of businesses to actually hire. Moreover, the high number may be the hangover of major labor shortages that occurred earlier in the pandemic. Businesses may be simply window shopping for talent. Also, consider the ease at which this number could drop - business simply stop posting. No sweat off their backs.
If there are so many available jobs, why are claims for unemployment rising? And why are the unemployed staying unemployed, as suggested by continuing claims? This tells me there is either a skills mismatch or the job openings data is bunk. Probably a bit of both.
Non-farm payrolls is influenced by the birth-death ratio, which is an estimate of the number of jobs created by new business openings. The chart at the bottom shows how the estimate has increasingly added to non-farm payrolls over the past several months. A major criticism of the birth-death ratio is that it is inaccurate during shifts in the business cycle.
Deteriorating wage growth tells me that employers increasingly have bargaining power over employees. Job openings and non-farm payrolls data suggests the opposite should be happening.
Weekly hours worked is declining. When business slows, the first thing to get cut is hours.
Overall, none of this data (plus the 24 data labor market data points summed up by the Kansas City Fed Labor Market Conditions Indicator) points to an ebullient labor market.