Job openings and unemployment

Starting in December, 2000, the Labor Department began a new survey to better understand the state of the labor market. Previously, they had surveyed households to determine the unemployment rate (among other things), and they had surveyed businesses, to determine the number of jobs (among other things). The new survey quantifies job openings, hires, quits, terminations, and other things. (It is very strange that the Clinton Labor Department only saw fit to begin such measures as the next president was beginning his term…)

It was a tremendous moment of achievement for our country in October 2017 when, for the first time, the job opening rate was actually higher than the unemployment rate. Thus in theory (!), everyone could get a job. Thus things stood until the pandemic.

In the graph below, the blue curve is the job opening rate, as a percent of the labor force, and the red curve is the unemployment rate, as a percent of the labor force. Notice in the graph below that the curves move in opposite directions, which makes sense. In good economic times, many jobs open up, and there are few people who cannot get jobs. In hard economic times, few jobs open up, and there are many people who cannot get jobs.

The spike on the right side represents the self-inflicted lockdown. Coming out of this lockdown, the job opening rate has begun increasing again. Amazingly, it has surpassed its previous record under President Trump. In March 2021, the job opening rate was an incredible 5.3% of the labor force, notably better than the Trumpian record of 4.8%.

According to the pattern of the previous 20 years, unemployment should have crashed to near 3%. However, it remains elevated at 5.8% in May. What is going on?

Part of the story is that people are not going back to work. Part of the issue is the supplemental unemployment payments being disbursed by several states, paying people to stay home.

There may be another ominous ingredient, observed by Mrs. Surak. The labor force participation rate (LFPT) is the percent of the working age population that is either working or seeking a job. This rate had improved under Trump, went down during the lockdown, and has begun to recover. At least, it recovered until May, when it dipped slightly. Mrs. Surak wonders if this is a warning of people becoming ill post-vaccination.

In any case, we have a stagnating recovery and budding high inflation, which are the ingredients of stagflation. The last time this happened in the 1970s, gold outperformed.

In the following graph, the blue curve is the real price of gold, adjusted to match the nominal price in February 2020. The red curve is 30 times the CPI inflation index percent increase from one year ago plus 120 times the unemployment rate, which could be a type of misery index.

The graph implies that peaks in this particular misery index precede peaks in the real (inflation adjusted) price of gold (which has never recaptured its previous peak in January 1980). This artificial misery index plunged in the last year of the Trump presidency, but it is making a comeback under Biden; see the uptick in the red curve on the right side of the graph. Together with the catastrophically low velocity of money, this portends well for gold.

I am not a financial adviser, so invest at your own risk.

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