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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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Pursuing the Purple Squirrel


The latest surge in job openings to a record high, according to the JOLTS data, was seen as some as evidence of an extraordinarily tight labor market. What they missed amid the euphoric headlines was the drop in actual hiring.



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 firings 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, turning negative briefly last year and then again, on a sustained basis this year.

The point is that the difference between the number hired and the number of job openings is not just negative now, but has plunged to a record low of negative three-quarters of a million jobs. How can that be when the headlines suggest the job market is strong?

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.

Rather, this suggests that employers feel they can be increasingly choosy, and are intensifying their hunt for the “purple squirrel” – candidates with the perfect combination of skills, education and experience, who will work for peanuts. Because purple squirrels are the rarest of creatures, real hiring has dropped.

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

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