MNI INTERVIEW: US Job Market Slowdown Reflects Slowing Growth
MNI (WASHINGTON) - Rising U.S. unemployment can be attributed to a slowdown in demand rather than to immigration or structural factors, and labor market tightness has returned to the more normal conditions that prevailed in the years leading up to the pandemic, Minneapolis Fed economist Simon Mongey told MNI.
The job-finding rate of unemployed workers has fallen below 2019 levels, as has the hiring rate of firms, after more than 5 percentage points of Fed rate hikes, he noted.
"It's hard to square away the decline in the job-finding rate of unemployed workers and decline in hiring rates of firms with an increase in labor supply," he said in a written interview last week.
"While historically it is the case that recent immigrants have lower job-finding rates, in this instance their job-finding rates would have to be much lower than any previous estimates to deliver the decline in the job-finding rate we observe in the data."
GRADUAL MODERATION
Mongey has argued since late 2022 that the labor market was likely headed for a soft landing, based on his analysis of its ability to match job seekers with open positions.
At the time, the ratio of job openings to the total number of available jobs, at 6.8%, was just coming off record high levels, and he predicted vacancies would fall as the economy cooled without the usual spike in unemployment.
That's proven to be the case. The vacancy rate has dipped to 4.8% at the same time that the unemployment rate returned to a more normal 4.1% from a historic low of 3.4% over the past 18 months.
Still, the vacancy rate remains somewhat above its pre-pandemic level and has generally diverged further from other labor market indicators since 2010. The cheaper cost of posting jobs online may be one factor.
FULLY LANDED
Recalculating the vacancy rate by extending its historic relationship to the quits rate during 2001 to 2010 to present day, Mongey finds the adjusted vacancy rate continued to fall in August, the latest month of data available. The rate reported by the Labor Department saw an unexpected rebound.
"One way to think about this is like a notion of breakeven employment growth. Here the economy would need to be adding more vacancies than occurred in August for the adjusted measure to increase," he told MNI.
His analysis places the labor market on a point of the Beveridge curve where vacancies are falling and unemployment is rising.
"This adjusted Beveridge curve suggests the U.S. labor market has well and fully landed," he said. (See: MNI POLICY: Bumpy US Data Won't Take Fed Off Steady Course)