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Once an obscure job openings survey catches the Fed’s attention

2022/11/29 (Nov 29th, 2022 11:08 pm)
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D.C., November 29 – In order to cover a gap in the 1980s economic statistics for the United States, Katharine Abraham, a doctoral student at Harvard University, pieced together an estimate of labor demand, which was simply a best guess as to the number of unfilled positions in the nation.

She drew on a jumble of material, including surveys that certain states had performed, a little data from the manufacturing industry, and even a little bit of information from Canada.

She said in a recent interview that it was the most accurate information at the time. However, she eventually transformed that effort into one of the most significant, though still somewhat obscure, sets of labor market statistics outside of the monthly U.S. employment report itself in the 1990s while serving as the Clinton administration’s commissioner of the Bureau of Labor Statistics.

When compared to unemployment statistics that date back to the 1940s, the Job Openings and Labor Market Turnover Survey (JOLTS), which was first made available to the public in 2002 and contains data going as far back as December 2000, is a recent project that budget cutters even tried to kill the first time Abraham proposed it.

However, it is already established enough that Federal Reserve Chair Jerome Powell uses the JOLTS job vacancy estimate as a benchmark for his opinions on the labor market and, consequently, the potential path of interest rates.

Tim Duy, chief U.S. economist at SGH Macro Advisors, wrote in a note that when the survey for October is released on Wednesday, “all eyes will be on the job openings data” and whether an anticipated decline in openings reaffirms the Fed’s hope that the extremely tight hiring conditions seen through much of the COVID-19 pandemic are easing.

“OFF THE LINE”

Estimates of the Fed’s anticipated path for interest rates might be skewed by a significant surprise in either direction.

With about two jobs open for every jobless person, the JOLTS vacancy estimate “has been exceptionally relevant in this cycle because it has been so out of line,” Powell said in a press conference following the conclusion of the central bank’s policy meeting on November 1-2.

In contrast to the 21,000 businesses surveyed by the Labor Department for JOLTS, the monthly unemployment rate is the result of a much larger sample of about 60,000 people each month, but it still garners more attention as a proxy for the state of the labor market.

In order to give additional complexity regarding the employment market dynamics, researchers have recently explored for supplements, in particular to data like JOLTS.

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Towards instance, a worker who leaves their job and a worker who is fired may both appear to be heading for unemployment. However, in a robust economy, a “quitter” is more likely to just go on to another employment, but an increase in layoffs indicates that the economy may be declining.

JOLTS tracks both, and former Fed Chair Janet Yellen upgraded the quits rate to important prominence in her examination of the labor market while still vice chair of the American central bank. Estimates of resignations would later, when they peaked during the epidemic, generate discussion of a “Great Resignation.”

LARGER SCOPE

The JOLTS data has gained enough notoriety that the Biden administration wishes to double the survey’s size and increase funding from roughly $5.5 million to $9.6 million so that estimates can be produced without the current one-month lag, provide more detail by industry and state, and close what are thought to be long-standing gaps.

The new survey’s one-page form, which requests six pieces of information, was created to be simple for firms to complete and to promote answers.

However, one problem is that the number of job openings listed by companies doesn’t necessarily reflect how actively they’re looking to fill those positions. As a result, it’s difficult to tell whether executives are actively negotiating salaries or are simply waiting for the right candidate, according to Steven Davis, an economics professor at the University of Chicago Booth School of Business.

“JOLTS was filling a data need when it first appeared, and it has done a decent job of doing so. It’s just lacking, “added Davis. “What’s absent is any information on the effort the company is doing, such as advertising, how quickly interviews are conducted, and whether the criteria are stringent or lax.

The survey’s current manager, Paul R. Calhoun Jr., who was engaged in its development in the 1990s and may address these and other difficulties in a future extended JOLTS survey.

The pay offered for open positions is one of the significant gaps that could be filled, according to him. This information, when combined with occupational estimates that JOLTS economists are also working to develop, could help show how wages are expected to behave, which is another crucial area for the Fed to address in its efforts to control inflation.

You have a ton of employment opportunities, Calhoun said.

TENDENTIAL START

Abraham claimed that after President Bill Clinton’s White House rejected her initial survey proposal, it was revived when the unemployment rate dropped to about 4% during the technology-driven boom of the mid- to late 1990s and they wanted more information about what was happening.

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“We knew how many individuals are seeking for work but don’t have a job since we had the unemployment rate. There was nothing comparable on the employer side, “She spoke. People “were very concerned about labor shortages and the difficulty employers were having in filling jobs,” which is similar to the current situation.

Even though, JOLTS employees claimed that for the first few years, the program had a shaky hold.

The goal of the team at the time, according to Mark Crankshaw, the lead statistician for JOLTS who also worked on the program’s development, was to create a straightforward survey “to get this off the ground for a few years and hopefully survive.”

I certainly wasn’t expecting it, “said he.

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