After updating my chart with the most recent JOLTS data from the BLS, I noticed that the Stock-Vacancy Ratio is currently at a historic low – at 1.06, beating the 1.09 reading in 2000.
What does this mean? That is a good question.
What I find interesting and fun to ponder over is the possible relationship between the ratio and macroeconomic conditions – specifically overall labor market conditions and inflation. It is also hard for me to ignore the fact that the last two times the ratio was this low was at the onset of both the 2000 Tech bubble and the 2008 housing crisis.
Overall Labor Market Conditions
When I view this chart I interpret it as a general measure of labor market efficiency. Are employers finding enough people to fill open positions? Regardless of what the employment rate is, it could be 5% or 10%, what matters here is whether or not open positions are being filled.
What the chart is currently telling me, and what I have been seeing for the last two years, is that there has been an increasing number of unfilled positions. Or to put it another way, while the number of hires has been steadily increasing since 2009, the number of openings has been growing at a much faster rate. Why? More pondering required.
Between the Stock-Vacancy Ratio, anecdotal evidence and the effect of Baby Boomers beginning to step out of the labor market, I have become confident in concluding that we are at the precipice of a moderate to severely tight labor market that will bring with it inflationary pressures. It could be 1 year away or it could be 10 years away, but I think the data makes it quite clear. I’ve already written about the Baby Boomers and their affect on the labor market for both the medium to long term as well as the short term effect to younger generations. I’ve also written about the difficulties that firms are facing in finding talent.
There is a talent war brewing and it will only get worse as Boomer retirements begin to pickup. If firms are having a hard time finding the right candidate, it stands to reason that they will have to either be more aggressive in developing their own or poaching them from another firm. I find it interesting to see that both the rate of increases in hiring and quits have mirrored each other since 2009 – is it too speculative to say that perhaps the majority of those quitting are merely transfers to a new firm as a result of poaching?
This is a spill-over effect that I would expect from a tight labor market. A natural effect of firms having trouble filling positions is to spend more to attract talent. We saw this during both the height of the tech and housing bubbles. The Fed should be watching this closely, as it would not be compatible with their current policy actions and would more than likely require swift action on their part.
In a nutshell, I consider this a VERY interesting data point to watch. As usual, a graph is like a piece of art and while I may see one thing, someone else may see another. Lets see what happens.