Vacancies show a hot labor market. But they could overstate how hot.

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For most of the past year, there have been about two jobs open for every person looking for work in the United States. This is good news for workers, millions of whom have found higher wages and new opportunities. But the dynamics also kept the labor market unsustainably heated and fueled the lingering labor shortage that helped push inflation to 40-year highs.

So, as the Federal Reserve tries to cool the economy and rein in price increases, one measure central bankers are watching closely is how many open jobs there are out there. “Jobs are still almost 2 to 1 for the unemployed,” Federal Reserve Chairman Jerome H. Powell said last month. “That, and giving up, are actually really good ways to see how tight the job market is and how different it is from other cycles. … We think these things have, for a long time, really added value in terms of understanding where the job market is.”

But some economists fear that, especially in a tight labor market feeling the effects of the pandemic, there is a gap between the accuracy of the data and the weight policymakers place on it. Data can be noisy: a post for an IT specialist can stay online long after a business decides not to fill it, or a grocery store that needs three or four boxes might find them all in a single post.

Relying too much on vacancies can further blur an already clouded view of the economy, making it harder for policymakers to pick up on subtle information. changes in the labor market as they develop. And the ultimate consequence, some economists warn, could be that policymakers go too far in their fight to slow the economy. without realizing it until it’s too late.

As the Fed fights inflation, concerns grow that it is over-correcting

“I notice that a lot of companies post job openings when they don’t really expect to hire those jobs,” Loretta Mester, chairman of the Cleveland Fed, said in a call with reporters Oct. 11. there is a vacancy, but it is the same vacancy and they are going to hire five people. You have to take some of this data with a grain of salt. But these data show that demand for labor remains strong.”

On one level, there is little reason to fear that the number of job openings – totaling more than 10 million – tells a fundamentally flawed story about the economy. The job market is extremely tight by almost every measure: the unemployment rate is low at 3.5%. Wages are rising as companies compete for workers. More than 4 million people left their jobs in August, according to the Department of Labor.

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In addition, Fed officials look at a comprehensive dashboard and do not make decisions based on one indicator alone.

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For now, policymakers are not relenting in their commitment to raise rates, reduce inflation and bring the labor market back into balance. Officials warn of pain ahead but say they can still stave off a recession and avoid widespread layoffs. (Still, another 0.75 percentage point increase in the Fed’s underlying interest rate is widely expected at its next meeting early next month.)

But job vacancies are the key to this argument. The Fed cannot increase the supply of workers, so instead it aims to cool demand for labor with higher interest rates. Officials say they can manage a “soft landing” if companies pull back on new investment and hiring, which could reduce the number of job openings without causing people to lose their jobs.

The odds of achieving this seem smaller by the week as recession risks mount in the United States and abroad. But a specific problem can arise if the vacancies themselves tell an incomplete story of how the economy responds to the Fed’s inflationary struggle. If companies are less motivated to fill vacancies they have posted or are delays in removing job vacancies – or simply never does – which could give authorities a false guarantee that the job market will continue to resist the most aggressive rate hike campaign in decades.

It would not be the first time that flawed data on the labor market has clouded the authorities’ understanding of the economy. Last year, the Fed delayed raising interest rates even as inflation rose, in part because the job market appeared to be weaker than it actually was.

“You look at all the labor market indicators — unemployment-pollution ratio, layoffs — and all these indicators are showing a tight labor market and a strong recovery,” said Preston Mui, economist at Employ America, a liberal think tank, who wrote skeptically about vacancy data. “But vacancies are showing an especially strong job market. So if the Fed is relying too much on that indicator, it’s going to tell them to tighten more than they would otherwise, and I think that’s extremely risky.”

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A shortage of workers is fueling America’s biggest labor crises

Even as companies face a slowing economy, it’s not clear what would ultimately drive them to cancel their openings. In Basic Fun! toys in Boca Raton, Florida, Jay Foreman weighs his growth ambitions against maintaining his current workforce and ensuring the $200 million company is as financially solid as possible.

Foreman is still advertising for a handful of creative jobs, like on graphics and design teams — even if he doesn’t feel an urgent need to hire for them. His headquarters had problems filling administrative positions.

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“Half of our lists are a little bit of ‘fishing lists,’” Foreman said. “What I mean by ‘fisherman’s lists’ is that we don’t really need to fill the vacancy, but if we find a resume that really feels special, we’ll fill the vacancy.”

Capturing that kind of intent is difficult, no matter how the openings are measured. One of the most cited measures comes from the Federal Bureau of Labor Statistics, which releases a monthly report of job openings and worker turnover, or JOLTS. This counts job openings with an employer who is actively recruiting to fill a position where work can begin within 30 days. The latest report showed a staggering drop in jobs, with 1.1 million jobs disappearing in August. That marked a 10% drop from the more than 11 million openings reported in July — and was welcome news for Fed officials.

Another measure comes from Indeed, a leading job site that collects daily snapshots of the number of posts on its platform. Indeed also publishes data on posts that have been added to the platform in the last seven days, so “definitely, posts that stay forever are not showing up,” said Nick Bunker, director of economic research for North America at Indeed Hiring. . Laboratory.

There, too, job openings are high and remain about 55% up from February 2020, the last month before the pandemic swept the country. But after a spike in posts throughout 2020 and 2021, the numbers are slowly decreasing. Jobs in customer service, arts and entertainment, accounting, insurance, sales and IT operations have all declined, according to the Indeed Hiring Lab tracker.

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The data should not be too far apart, in general terms. Julia Pollak, chief economist at ZipRecruiter, said companies don’t have much of an incentive to keep postings online if they don’t intend to fill them out. Companies that advertise may have monthly subscription plans that allow them to post up to a certain number of jobs. Others pay per click or per app. An individual employer could paste an opening on their website for free, but “widely advertising these posts and drawing eyes to those posts is free of charge,” Pollak said.

A Goldman Sachs report in May argued that the surge in job vacancies was “genuine” and disputed claims that many listings languish online. But other experts say there is still room to understand the limits of what job vacancies can definitively tell policymakers about the labor market at any given time.

“You should take jobs seriously, but not literally, and I think that’s a good way to think about it,” Pollak said. “Ten million jobs, or 20 million posts online, doesn’t necessarily mean that’s the number of jobs available in that minute. But it is a very important measure of hiring sentiment and also of recruiting intensity.”

Across the country, companies are still desperate to hire. And in their search, they may encounter problems of a different kind: there simply aren’t enough people to fill millions of jobs, no matter how hard they try.

On a typical busy Saturday, Gary Weiner might have 15 or 16 employees working at Saxon Shoes stores in Richmond and Fredericksburg, Virginia. He could use four to six more employees, he said, and is especially eager to hire before the holiday season is in full swing.

Each year of the pandemic brought a new challenge to the footwear company: 2020 was “almost devastating” and 2021 was “almost bearable” thanks to government stimulus. Now, the company is approaching pre-pandemic sales. But Weiner just doesn’t have enough employees — and often, his posts don’t produce results.

“We’re on Indeed, we’re on ZipRecruiter,” Weiner said. “People are just not there to apply for these types of jobs.”

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