- Fewer job openings may sound bad, but right now it bodes well for the economy.
- Companies desperate to hire have raised wages and fueled fears of ever-higher inflation.
- The Fed could roll back its aggressive policies to cool the economy and ease the pain for everyone.
The Great Retirement was fun while it lasted, but the job seeker party may be drawing to a close.
That’s actually a good thing for the economy.
Fewer job openings may sound bad, but after months of a job glut and not enough workers, a drop means the gap may be closing. This could lead to more clarity for politicians, companies and job seekers.
Job vacancies – the main signal for tracking labor shortages – peaked in March as restrictions were lifted and the economy reopened. The number hovered near record highs for much of 2022, but August data showed a sudden shift: US openings plunged 1.1 million, the biggest drop since early 2020.
Openings probably won’t drop as much in September, but the trend is clear. Businesses are reining in hiring plans as the economic outlook worsens and interest rates soar. But the number of new hires and layoffs held steady in August, suggesting that workers are not yet being hit too hard by the Federal Reserve’s inflationary war.
This combination of falling openings and still low layoffs offers a glimmer of hope for the US economy.
Less pressure on the Fed to inflict pain on Americans
Julia Pollak, the chief economist at ZipRecruiter, says it’s helpful to think of the job market as playing with musical chairs. For much of 2022, there were far more chairs (vacancies) than players (available labor). But chairs were being pulled away at a much faster rate in August, which could shake up job seekers.
“If there’s 100 chairs and 50 workers, workers are cool man!” said Pollak. “Everything is fine down to 51. There’s a tipping point where suddenly it’s not that much of a game, and job seekers are a little more desperate to take the first job that’s out there.”
This renewed balance between workers and employers is exactly what the Fed is after. Its leader, Jerome Powell, has repeatedly highlighted the vacancy-to-unemployment ratio as a sign that the labor market is unsustainably tight.
But the Fed isn’t exactly trying to raise unemployment. His main fear is that a persistently tight labor market will push wages sharply, creating a dreaded wage-price spiral in which bigger paychecks lead to more spending, which in turn leads to higher prices and even bigger wage increases – and so on.
Powell said in September that bringing inflation down would likely require some “softening” of the labor market in the form of higher unemployment and slower wage growth. However, the recent fall in job vacancies suggests that the labor market may be returning to normal without widespread job losses.
Pollak said that two or three vacancies per available worker doesn’t necessarily mean there are actually that many vacancies — it rather reflects the urgency and hiring intensity of companies.
“Job postings reflected not only how much more hiring was going to take place, but also how much more recruitment intensity needed to happen to get those hirings,” Pollak said.
When that urgency eases a little, so do the openings. Pollak said it would also likely help offset layoffs since they are so high due to the many vacancies. Even so, she added, layoffs are likely to remain permanently higher than the pre-crisis norm as remote work makes it easier to transition into a new role.
Workers don’t have to deal with it’spirit’ yeahb vacancies – and they probably won’t get fired either
The tight but ever-fluctuating job market has also led to a creepy hiring phenomenon: ghost jobs.
Companies post record job openings but don’t say when – or if – they will fill them. This frustrates some job seekers as they apply for multiple jobs and never get an answer.
Ghost jobs are the result of a confluence of economic factors. Companies aren’t sure where the economy is going, so they post the job and see what happens. Others are leaving in-demand positions open indefinitely to see if they can snag candidates. Still others want to fill their pipeline if they have the bandwidth to rent.
On the working class side, this can feel a bit like a visit to Willy Wonka’s chocolate factory. There’s supposed to be an abundance of jobs and opportunities around them – they just can’t touch or reach them.
That companies are becoming more realistic with their job offers could therefore be a bittersweet consolation for job seekers: they don’t put time and resources into an application without very little hope of a response.
With ghost jobs hopefully disappearing into the Halloween ether, and the latest job data showing a strong – but not too strong – attitude, a soft landing is still possible.
“At least from a labor market perspective, the labor market is doing its part to bring us to a soft landing,” Daniel Zhao, chief economist at Glassdoor, told Insider. That comes from wage gains and job gains that are moderating.
Nick Bunker, economic research director at Indeed Hiring Lab, described declining job vacancies but steady unemployment as “one of the items on the soft landing checklist.”
What we’re not seeing right now, Bunker said, is signs that layoffs are picking up. That’s good news for anyone worried about a recession, and it suggests employers may have learned a lesson or two from the labor shortage.
“Employers don’t let employees go,” Bunker said. “They are very attached to workers.”
Pollak said that if there is a downturn, “there will be no layoffs this time”. That’s because companies have already been so cautious they won’t have any fat to trim.
“I don’t see this as the bloodbath that was the start of the pandemic,” Pollak said.