Information about the job market is extremely important right now, as the data will dramatically impact the economy. It could mean the difference between heading into a deep, shallow and prolonged recession or possibly avoiding it.
Jerome Powell, the Federal Reserve Bank chair, is holding fast to his edict of hiking interest rates to combat record-high inflation levels. The numbers of newly added jobs or job losses reported by United States Department of Labor reports will move the stock market and push Powell to either continue raising rates—which purposefully causes job losses— or hold off.
The number of job openings declined to 10.8 million as of the end of January, according to the Bureau of Labor Statistics Job Openings and Labor Turnover Summary (JOLTS) released on Wednesday. The number of hires and total separations from the payroll did not change too much at 6.4 million and 5.9 million, respectively. The January JOLTS report showed that hiring increased to 6.37 million from 6.25 million, layoffs surged to 1.72 million from 1.48 million, and quits dropped to 3.89 million from 4.09 million.
The Fed is focused on employment data, including the monthly JOLTS report, to provide insight into the workforce. If the job market remains hot, the Fed must pour more cold water on it to cool it down. This is accomplished by hiking interest rates that burden businesses financially. In response, companies cut costs and lay off employees. This is why there have been unrelenting layoff announcements since the Fed implemented this strategy.
Data is compiled from employers about their businesses’ employment, job openings, recruitment, hires and separations. JOLTS defines job openings as all positions that are open on the last business day of the month.
The most significant declines in openings were in the construction sector. It’s not surprising that mortgage rates significantly increased, making it hard for families to purchase a new home because of the higher interest rates.
Hospitality, leisure and food services come after construction with a decline of 204,000 job openings. The financial and insurance industries saw drops of 100,000. Meanwhile, transportation, warehousing and utilities were up by 94,000 and manufacturing grew by 50,000.
Nick Bunker, economic research director for North America at Indeed, the large aggregation jobs site, said that demand for workers will likely continue to moderate as job postings on Indeed declined throughout February. Julia Pollak, the chief economist at ZipRecruiter, told CNN that she anticipates the JOLTS data will “track what we’re seeing in online job postings, which have fallen around 28% since the Fed began its supersized interest rate hikes in June.”
ADP’s monthly employment report, released on Wednesday, indicates that the private sector added 242,000 jobs in February, beating expectations. The jump was solidly higher than the 119,000 jobs added in January.
The JOLTS report will be frustrating for the Fed. The hiring drop is insufficient to make Powell ease up on the interest rate hikes. Powell will likely continue to fight inflation, bringing it down to his target level of 2% from north of 5%, as measured by the personal consumption expenditures price index the Fed follows.
Powell, testifying before the Senate Banking Committee on Tuesday, said that the Fed has a long way to go in getting inflation under control. The prospect of higher rates for a longer period of time sent markets tumbling following his testimony.
Stock prices plunged on Tuesday after Powell asserted that the Fed is prepared to speed up the pace of interest-rate hikes, if he doesn’t see inflation backing down, incurring more layoffs. During the hearing, the topic arose of whether or not it’s fair for people to lose their jobs, as the Fed and U.S. government flooded the economy with too much money, bringing about 40-year, record-high inflation levels. Powell and Democratic Senator Elizabeth Warren debated this matter.
Relying On Shaky Data?
Some economists are growing concerned that the data relied upon by the Fed may be inaccurate. The number of people responding to surveys fell sharply since the pandemic—now just under 31%. Smaller sample response sizes may not be completely reliable.
One of the many questionable matters of the post-pandemic cycle has been the rapid rise in job openings. You should approach the JOLTS report with a bit of skepticism. The survey relies upon the U.S. Bureau of Labor Statistics collecting data points about job openings. Relying upon job listings as a key metric is problematic. Companies don’t just post a job when they want to hire. There are numerous scenarios when jobs are posted, but are not real.
Why Some Jobs Are “Fake”
When there are layoffs or it’s a tough economic climate, some businesses will post jobs to create the appearance that the company is doing well and growing, while everyone else is floundering.
Many jobs are posted on the company website and end up on job aggregation sites. Time goes by and the company forgets to take down the role. It stays on the company site and an array of job boards. To the job seeker, the roles look new, but they are months old and most have already been filled.
Most companies have the policy to post jobs online to promote diversity hires. They want to show that they are making a good-faith effort to find the best talent—whether promoting from within or through a job listing. Unscrupulous firms use this as cover to hire someone they already know they want to hire. The job posting creates a false impression that it is a fair and open hiring process.
The company can gain a sense of the marketplace by posting phantom jobs. By the responses, they can determine how much money other places offer or whether the role is hot. If the company is looking to downsize or cut a few jobs, the phony roles can provide insight into how hard it would be to find a replacement and at what compensation level.
Companies also place phantom job ads to build a pipeline of candidates for the future. They may have no interest in interviewing or hiring a person right now.
Moreover, when people quit, the remaining workers must pick up the slack. They are forced to work longer hours without any pay increase. Then, they start complaining about why the company isn’t actively looking to fill the vacancies. To appease the remaining staff, the company places ads without any intention of finding a replacement. They are merely appeasing the workers.
Lastly, interviewers may actually invite people to interview based on the sham job listing. However, there is no intention of hiring the person. The company has someone picked out already. It may be an internal candidate that a senior executive has handpicked for the role. To orchestrate it to seem that the interview process is fair, the unsuspecting applicant doesn’t stand a chance, as the decision was already made and you’re just part of the charade.
The often-cited number of job openings compared to the number of people hunting for roles has some flaws. Just because there are a lot of job openings doesn’t mean that they are compatible with the job needs and requisites of the people hunting for a new opportunity. The available roles may be lower-paying and dead-end jobs people don’t want.