Today, we are fortunate to present a guest contribution written by Paweł Skrzypczyński, economist at the National Bank of Poland. The views expressed herein are those of the author and should not be attributed to the National Bank of Poland.
BLS releases “The Employment Situation – December 2022” and “Job Openings and Labor Turnover – November 2022” allow us to update the jobs-workers gap and the business cycle indicator based on it (previous posts: , ). As previously we assume that job openings level remains unchanged at the end of the sample (T) in comparison to the previous observation (T-1), due to the fact that JOLTS survey data availability lags the Household Survey data availability by one month. This update also incorporates revisions of seasonally adjusted Household Survey data published in “The Employment Situation – December 2022”. These revisions had a minor effect on the gap and hence the business cycle indicator – over 2018:01 – 2022:11 mean revision of the gap was only -3,2k (-0.002 pp).
Figure 1. Jobs-Workers Gap Revision (Percentage Points)
In December 2022 the jobs-workers gap was at 2.9% or 4.7 mn, up from November by 0.2 pp or 0.2 mn.
Figure 2. Jobs-Workers Gap (Percent)
With this new data the jobs-workers gap business cycle indicator (JWGBCI) fell to -0.67 pp in December from -0.63 pp in November and remained above the recession threshold of -0.93 pp. In October the JWGBCI was also at -0.67 pp as in December. Recall the indicator uses a smoothed gap, namely we calculate the change of the three-month moving average of the jobs-workers gap relative to its maximum during previous twelve months.
Figure 3. Jobs-Workers Gap Business Cycle Indicator (Percentage Points)
What magnitude of m/m change in the jobs-workers gap in January 2023 is needed to make a recession call? The jobs-workers gap (not smoothed) would need to collapse to 1.9% from 2.9% in December, that is 1 pp which corresponds to 2 standard deviations of historical volatility. Figure below presents this change (marked red) in historical perspective. Seems rather unlikely, as it would most likely mean quite deep contraction of employment or job openings, or both in m/m terms as of January.
Figure 4. Jobs-Workers Gap 1-Month Change (Percentage Points)
Conclusion: Recent readings of the gap and the business cycle indicator are in line with the labor market remaining resilient to fast tightening of monetary policy.
This post written by Paweł Skrzypczyński.