U.S. Economic Brief || Labor markets remain extremely tight in February

Labor markets remain extremely tight in February

*Fed Chair Powell in recent public comments has repeatedly characterized U.S. labor markets as “extremely tight”. February’s JOLTS report further reinforces that view. Job openings were flat at a near record high 11.3m, leaving the job opening rate unchanged at 7% (Chart 1). Hiring activity was robust over the month, despite elevated COVID-19 case counts associated with the omicron wave of infections with hires increasing 260k m/m to 6.7m, lifting the hiring rate to 4.4%. Hiring activity could accelerate in the coming months as health concerns fade.

*Taken together, February’s JOLTS report suggests that labor demand continues to significantly exceed supply. Labor market churn remains elevated, and amid tight labor markets and strong product demand, the balance of power in wage negotiations has shifted towards workers, who are demanding higher nominal wages to catch up to elevated prices and in response to rising inflationary expectations. While average hourly earnings growth moderated in February, this may be due to compositional effects as relatively more lower wage earners are rehired, and we expect nominal wage growth to remain elevated in 2022.

*The number of job openings per unemployed person – a gauge of labor market tightness tracked closely by the Fed – increased to a near record 1.8, pointing to even tighter labor market conditions in February relative to January (Chart 2). The number of job openings relative to total available labor supply (defined as the total unemployment plus the number of people not in the labor force but who indicate they want a job) has increased to 0.97 (Chart 3). Stated differently, of the 11.6m individuals who are either unemployed or not in the labor force but want a job, there are enough job openings to provide all but 350k of them with employment.

*Reflecting sustained confidence in the ability to find new employment, and shifting work-life preferences, the total quits rate ticked up to 2.9%, while the private quits rate held steady at a near-record high 3.2% (Chart 4). Labor market churn is particularly pronounced in the leisure and hospitality industry, with a quits rate of 5.6% and a job opening rate of 9.9%, complicating the industry’s need to staff up ahead of the summer holiday season – payroll employment in the sector remains 1.5m below its pre-pandemic level. Businesses continue to hoard labor with layoffs and discharges edging down over the month, while the layoff and discharge rate remained flat at a near record-low 0.9%.

*Job openings are elevated across most industries, with particularly high levels of job openings in trade, transportation, & utilities (1.9m), and education & health services (2.2m). Hiring increases were concentrated in the retail trade and construction industries which saw hires jump up by 100k and 75k, respectively. Labor shortages have crimped building activity, and while hires ticked up in construction, openings remain well above their pre-pandemic levels and the number of housing units under construction per residential construction worker is at an all-time high (Chart 5).

Chart 1. Job Openings vs. Hires (millions)

Chart 2. Job Openings per Unemployed Person

Chart 3. Ratio of Job Openings to Total Available Labor Supply

Chart 4. Quits Rate – Total Private vs. Leisure and Hospitality

Chart 5. Number of Housing Units Under Construction per Residential Construction Worker

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

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