A Ratio that Predicts Why We May Well Avoid a Recession

The ratio of job openings to the number of people unemployed is a simple measure of the health of the job market. This century, there have been an average of 62 job openings for every 100 unemployed people.

Jerome Powell is trying to lower inflation without causing much - or any - unemployment. The way he would do that is to bring down the number of job openings without bringing down the number of people who are unemployed. That strategy is looking distinctly possible.

For a variety of reasons, inflation seems to be dropping. Almost as importantly, to extent that Powell needs to "cool down" the labor market without triggering layoffs he seems to be doing that.

The ratio of job openings to unemployed people peaked at 200 job openings for every 100 unemployed people in March. That is triple what it has averaged this century. That is crazy.

As Powell has cooled the economy, this ratio has come down from 200 job openings for every 100 unemployed people to 180 job openings for every unemployed person. 180 is still far higher than its peak of 124 job openings for every 100 unemployed during the Trump administration. (And pre-COVID, that was a really strong job market.) The fact that Powell can bring this ratio from 180 / 100 down to 124 / 100 and still have a stronger job market than we had before COVID suggests that the Fed has a lot of room to maneuver without triggering a recession.

I know I am susceptible to optimism but this is really good news. If Powell lowers inflation without raising unemployment, it'll qualify as a very cool trick. Be prepared to applaud. And then exhale.