In the US, the ratio between the job openings rate and the unemployment rate remains very elevated. It is one sign amongst many of a very tight labour market. As growth slows down, this ratio should decline. Historically, this has been accompanied by slower wage growth. It can be argued that this time, this process may take more time due to labour hoarding, which should limit the increase in layoffs and hence the unemployment rate, and the high level of the vacancy rate, which should underpin the creation of new jobs. This means that there is a genuine risk of disinflation to be slow.
The US labour market remains very tight as illustrated by the low unemployment rate, the monthly pace of job creations -which was huge in January-, the high unfilled job openings (i.e. vacancies). Admittedly, the hiring rate has declined in recent months but it is still at the top end of the historical range that prevailed pre-Covid-19 (chart 1). Moreover, the ratio between the job openings rate and the unemployment rate remains very elevated, which is another sign of labour market tightness (chart 2).
US: VACANCY (JOB OPENINGS) RATE AND HIRING RATEAs the economy slows down further, this ratio should decline due to a reduction in the vacancy rate and an increase in the unemployment rate. Historically, such a development has been accompanied by slower wage growth. Normally, this is a very gradual process but research by the Federal Reserve Bank of Kansas City shows that, as of a certain point during the 2001 and 2008 recessions, “wage growth abruptly declined even though the vacancy-to-unemployment ratio did not move much.”[1] If wage growth slowed down sufficiently, one would expect core inflation to decline as well (chart 3).[2]
