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Vacancies show a hot labor market. But they could overstate how hot.

Vacancies show a hot labor market. But they could overstate how hot.

For most of the past year there have been roughly two open jobs for each person looking for work in the United States. That’s good news for workers, millions of whom have found higher wages and new opportunities. But the dynamic also has kept the labor market unsustainably hot and fueled persistent labor shortages that have helped push inflation to 40-year highs.

So as the Federal Reserve tries to cool the economy and get price increases under control, one measure central bankers are watching closely is how many open jobs are out there. “Vacancies are still almost at a 2-to-1 ratio to unemployed people,” Federal Reserve Chair Jerome H. Powell said last month. “That, and quits, are really very good ways to look at how tight the labor market is and how different it is from other cycles. … We think those things have, for quite a time now, really added value in terms of understanding where the labor market is.”

But some economists worry that, especially in a tight labor market feeling the effects of the pandemic, there’s a gap between how sharp the data is and how much weight policymakers give it. The data can be noisy: A post for an IT specialist could linger online long after a business decides not to fill it, or a grocery store that needs three or four cashiers could find them all with a single posting.

Relying too closely on vacancies could further cloud an already hazy view of the economy, making it harder for officials to catch on to subtle shifts in the job market as they unfold. And the ultimate consequence, some economists warn, could be that policymakers push too far in their fight to slow the economy without realizing it until it’s too late.

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“I realize that a lot of firms will post job openings when they don’t really expect to hire in those openings,” Loretta Mester, president of the Cleveland Fed, said on a call with reporters on Oct. 11. “Or they might have one opening, but it’s the same opening and they’re going to hire five people. You have to take some of that data with a grain of salt. But that data does show labor demand remains strong.”

On one level, there’s little reason to fear that the number of job openings — totaling more than 10 million — tells a fundamentally flawed story about the economy. The labor market is extremely tight by almost every measure: The unemployment rate is low at 3.5 percent. Wages are rising as businesses compete for workers. More than 4 million people quit their jobs in August, according to the Labor Department.

Plus, Fed officials look at a wide-ranging dashboard, and don’t make decisions solely based off one indicator.

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For now, policymakers aren’t budging on their commitment to hoist rates, slash inflation and get the job market back into equilibrium. Officials warn about pain ahead, but they say they can still avoid a recession and prevent widespread layoffs. (Yet another 0.75 percentage point increase in the Fed’s underlying interest rate is widely expected at its next meeting, early next month.)

But job vacancies are key to that argument. The Fed can’t boost the supply of workers, so instead, it aims to cool demand for labor with higher interest rates. Officials say they can manage a “soft landing” if businesses pull back on new investing and hiring, which could cull the number of open positions in the labor market without causing people to lose their jobs.

The odds of pulling that off appear narrower by the week, as recession risks rise in the United States and abroad. But a specific problem could emerge if vacancies themselves tell an incomplete story of how the economy responds to the Fed’s inflation fight. If businesses are less motivated to fill jobs they’ve got posted, or they’re slow to take down job postings — or simply never do — that could give officials a false assurance that the labor market is continuing to withstand the most aggressive rate increase campaign in decades.

It would not be the first time flawed data on the job market blurred officials’ understandings of the economy. Last year, the Fed held off on raising interest rates even as inflation climbed, in part because it appeared that the job market was weaker than it actually was.

“You look at all the job market indicators — unemployment-to-pollution ratio, quits — and all those indicators are showing a tight labor market and a strong recovery,” said Preston Mui, an economist at Employ America, a liberal think tank, who has written skeptically of vacancy data. “But vacancies are showing an especially strong labor market. So if the Fed is relying too much on this one indicator, it’s going to tell them to tighten more than they otherwise would, and I think that’s extremely risky.”

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Even as businesses stare down a slowing economy, it’s unclear what would finally push them to nix their openings. At Basic Fun! toys in Boca Raton, Fla., Jay Foreman weighs his ambitions for growth against maintaining his current workforce and making sure the $200 million company is as financially sound as possible.

Foreman is still advertising for a handful of creative jobs such as on graphics and design teams — even though he doesn’t feel an urgent need to hire for them. His headquarters has had trouble filling administrative jobs.

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“Half of our listings are a little bit of ‘fishing listings,’ ” Foreman said. “What I mean by ‘fishing listings’ is we don’t really need to fill the position, but if we come across a résumé that really looks special, we would fill the position.”

Capturing that kind of intention is difficult, no matter how openings are measured. One of the most-cited measures comes from the federal Bureau of Labor Statistics, which releases a monthly Job Openings and Labor Turnover Survey, or JOLTS, report. That counts job openings with an employer who is actively recruiting to fill a position where the work could begin within 30 days. The most recent report showed a stunning plunge in openings, with 1.1 million vacancies vanishing in August. That marked a 10 percent drop from the more than 11 million openings reported in July — and was welcome news to Fed officials.

Another measurement comes from Indeed, a major job site that collects daily snapshots of the number of postings on its platform. Indeed also publishes data on postings that were added to the platform in the past seven days, so that “definitionally, those postings that hang around forever aren’t showing up,” said Nick Bunker, economic research director for North America at the Indeed Hiring Lab.

There, too, job postings are high, and remain about 55 percent above February 2020, the last month before the pandemic swept across the country. But after a spike in postings throughout 2020 and 2021, the numbers are slowly easing up. Openings in customer service, arts and entertaining, accounting, insurance, sales and IT operations have all ticked down, according to the Indeed Hiring Lab tracker.

The data shouldn’t be too far off, in broad strokes. Julia Pollak, chief economist at ZipRecruiter, said companies ultimately don’t have much incentive to keep postings online if they don’t intend to fill them. Businesses that advertise might have monthly subscription plans that allow them to post up to a certain number of jobs. Others pay per click, or per application. An individual employer could conceivably paste an opening on its website for free, but “advertising those postings widely and attracting eyeballs to those postings is not costless,” Pollak said.

A Goldman Sachs report in May argued that the surge in job openings was “genuine,” and disputed claims that many listings languish online. But other experts say there’s still room to understand the limits of what job openings can definitively tell policymakers about the labor market at any moment.

“One should take job openings seriously, but not literally, and I think that’s a good way to think about it,” Pollak said. “Ten million openings, or 20 million online postings, does not necessarily mean that’s the number of vacancies available right that minute. But it is a very important measure of hiring sentiment, and also of recruitment intensity.”

Across the country, businesses are still desperate to hire. And in their search, they might encounter problems of a different kind: There just aren’t enough people to fill millions of jobs, no matter how hard they push.

On a typical busy Saturday, Gary Weiner might have 15 or 16 employees working the floor at Saxon Shoes locations in Richmond and Fredericksburg, Va. He could use four to six more employees, he said, and is especially eager to hire before the holiday season is in full swing.

Each year of the pandemic has brought a new challenge for the footwear company: 2020 was “near devastating,” and 2021 was “almost bearable” thanks to stimulus from the government. Now the company is nearing pre-pandemic sales. But Weiner just doesn’t have enough staff — and often, his postings don’t yield results.

“We are on Indeed, on ZipRecruiter,” Weiner said. “People are just not out there to apply for these types of jobs.”