Job openings suggest that payroll employment will expand respectably early 2014 while there is less slack in the labour market than Federal Reserve policy-makers believe.

Job openings lead employment and rose to a new recovery high in November – see first chart. This supports the view that December payrolls weakness was weather-related rather than fundamental, implying likely positive pay-back in early 2014.
 
The ratio of openings to employment, i.e. the vacancy rate, is an employer-perspective measure of labour market slack. It now stands at 2.9% versus a 2.7% average since December 2000, when the openings data start – second chart. Employers, in other words, are finding it more difficult to recruit suitable workers than on average over the last 13 years. This accords with survey evidence of rising skill shortages.

The current vacancy rate matches levels in the first halves of 2008 and 2005; the unemployment rate averaged 5.2% in both periods. With the jobless rate at 6.7% in December, this suggests that “structural” unemployment has increased by as much as 1.5 percentage points of the labour force since the late 2000s. If so, the Fed is optimistic in believing that the unemployment rate can fall to about 5.5%* without generating inflationary labour cost pressures.

*The “central tendency” forecast of Fed governors and regional presidents for the unemployment rate “in the longer run” is 5.2-5.8%.