Inflation Fears are Fuelled by Job Openings that Are Much Higher Than Expected
Job openings in the U.S. came in significantly above expectations for November and the previous month’s estimate saw a sizable upward revision, underscoring persistent tightness in the U.S. labor market that is likely to fuel inflation worries and push the Federal Reserve to continue its rate hikes.
The number of open positions at the end of November was 10.5 million—topping even the highest estimates. The median forecast was for 10.2 million.
The October figures were revised from 10.334 Million to 10.512 Million, which indicates that the market for jobs was more tight than expected and that the decrease in job openings at last year’s end was less dramatic than it seemed.
The figures come from the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS.
As a sign of the demand for labor, the Federal Reserve closely tracks job openings. Jerome Powell, Fed Chairman, has stated that to lower inflation the Fed must decrease demand for labor. Fear is that an elevated demand for labor could lead to higher wages which in turn will cause more inflation. The fear is that workers might seek higher wages to counter higher prices. This process is often called “a” “wage-price spiral.”
Fed officials are concerned that workers will begin to expect inflation to continue if they have high expectations. This could lead to inflation becoming entrenched in our economy. The Fed must act quickly to curb inflation, but central bankers think inflation expectations are well-anchored.
Fed officials closely monitor the ratio between unemployed people and open jobs to determine how tight labor market conditions are. These ratios are typically evenly matched. The ratio of jobs per person unemployed was 1.2 just before the pandemic. This was a high level and an indication that the labor market is tight.
Since over a decade, the ratio has been extremely unbalanced by lower levels of unemployment and very high levels of job openings. Wednesday’s JOLTS report indicates that the ratio remained at 1.7 to 1 in December, a ratio unprecedented prior to the pandemic but slightly lower than the two-to-one ratio seen last year.
In November, 4.2 million workers quit their jobs. This was an increase from four million in November. The rate of quitting rose from 2.6 percent to 2.7 percent. Another indicator of tight labor market conditions is the number of workers quitting their jobs. Workers tend to leave their jobs when they think they can earn more or find work elsewhere.
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