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During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Purple Squirrel Update


With job openings surging back toward record high, according to the JOLTS data, some see an extraordinarily tight labor market. What they have missed amid the euphoric headlines is the drop in actual hiring. Here we update last month’s data, based on our original analysis from last fall.

As the chart shows, the difference between the number hired and the number of job openings dropped to about half a million shortly before the start of the last two recessions (shaded areas). It then surged, peaking a little below two million soon after those recessions ended.


 
Following those two post-recession highs, hirings minus openings kept trending down for years. However, in the current cycle, it fell almost to the half-million mark by mid-2012, but then kept trending down, and has been negative almost continuously since early last year.

The point is that the difference between the number hired and the number of job openings is not merely shrinking, but has plunged back to almost negative three-quarters of a million jobs. Why is that happening?

When the number of job openings surges so much faster than economic growth, it results in a large and growing divergence between those ostensible job openings and authentic hiring. This is not an indication of a truly tight labor market. If it were, wages would be soaring, whereas nominal wage growth is under 2½%, compared to over 4% when labor markets truly tightened in the last three economic expansions. Meanwhile, wage growth has actually declined in real terms since last fall.

In fact, this combination of the recent drop in hiring and proliferation of openings suggests that employers are being increasingly choosy, and intensifying their hunt for the so-called “purple squirrel” – candidates with the perfect combination of skills, education and experience, who will work for peanuts. It is because purple squirrels are the rarest of creatures, that actual hiring has dropped.

So the spurt in headline job openings is a misleading marker, and the job market is not really as tight as some believe. There is more than enough slack for employers to be picky without needing to boost wages significantly to attract suitable candidates.
 
The job market reality, then, is that many of the “job openings” will never be filled, as only the most perfect purple squirrels need apply.

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