Weekly Updates
Weekly Updates
- In the immediate aftermath of the pandemic, the number of US job vacancies soared relative to the level of unemployment. Superficially, that suggested the labor market was extremely tight (and possibly less efficient). However, in the latest JOLTS data, the vacancy-to-unemployment relationship returned to pre-pandemic norms.
- The lesson is that there is a danger in relying on historical economic relationships at a time of structural change. There were two possible explanations for the US labor market shift—either the labor market was a lot tighter and a lot less efficient, or people were job hopping more (increasing the ratio of externally advertised vacancies to internally advertised vacancies).
- The headline data itself gave no clue as to which solution was correct. Looking into the data details, the job hopping explanation was the more plausible. That implied that the relative surge in vacancies would fade over time, as has proved to be the case.
- Many investment models rely on established relationships between aggregated “headline” data. Economic structural upheaval might change what the headline data is actually recording, and thus change the relationship with the broader economy and financial markets. Paying more attention to the details can help guide investors away from obsolete relationships.
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