Hiring 9 to 5
One sector of the economy that has no shortage of data points is the labor market. There’s high frequency data, such as weekly initial jobless claims, and widely covered data, such as non-farm payrolls and the unemployment rate. Regardless of the data point you choose to look at lately, they’re all sending the same message: the labor market is still hot. This is what we can call an “employee’s” market rather than an “employer’s” market based on the large gap between the number of job openings and the number of unemployed people. Some of the stats are staggering. Currently, with 11.3 million job openings and only 5.7 million unemployed people, the ratio of openings-to-unemployed is almost 2.0. Pre-pandemic, this ratio was only 1.2.
In a Hurry to Get Things Down
Despite indicators across other parts of the economy that are cooling, including housing, consumer sentiment, and manufacturing activity (to name a few), the labor market continues to churn out signals of strength. But in this environment, that may not be a good thing considering the Federal Reserve’s dual mandate of achieving two things: maximum employment and stable prices. With labor market data signaling that the first part of their mandate is in good shape, with a decent amount of room to cool before it becomes worrisome, the stronger the jobs market, the higher the expectation for Fed tightening. Right now, the Fed is in a hurry to cool prices, so in this case, good news for the labor market is bad news for rate hikes. But, the labor market is one of the last shoes to drop in a period of economic weakness, and it begs the question: how long is the lag and what does the data suggest in terms of when we might expect the labor market to slow down (and in turn, the Fed to slow down)?Take This Job and Love It
In order to answer that question, we need to identify a leading indicator of weakness in labor, which we’ve uncovered through a survey conducted by the Conference Board. The consumer confidence survey includes questions about the labor market and gauges whether consumers feel that jobs are plentiful, not so plentiful, or hard to get. When looking at how consumers are feeling about how plentiful jobs are, the data series has a curiously strong foreshadowing relationship with recessions. None of this is an exact science, but what we found was that the peak in “plentiful” has led the peak in employment by an average of nine months.

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