Broken Connection?

In thinking about the Job Openings number today, I was reminded of just how "broken" things are. Don't get me wrong, regime changes happen in the world of finance over time. Relationships between asset classes can change due to a variety of reasons. Sometimes these are structural and sometimes they are temporary.

Covid "broke" a lot of relationships due to the responses of various parties, i.e. the amount of stimulus that was done, consumer behavior, supply chains, etc. etc. And even after a number of years now, many of these relationships have not "normalized" which begs the question - are they structural changes?

This is what's on my mind in considering Job Openings and the Unemployment Rate. Historically, you have seen a negative correlation between the two. Job Openings decline as unemployment goes up, and vice versa. Pretty straight forward.

However, that relationship has changed since Covid. Job Openings continue to decline from the peak but Unemployment remains near 60 year lows.

Why this is happening is pretty well known. We saw a significant departure of older workers from the labor force during Covid which lowered the workforce participation rate. This has slowly recovered, but remains below pre-Covid levels.

Due to the scarcity of workers, it also seems companies have been hesitant to lay off people in spite of slowing demand. (as evidenced by the decline in job openings)

So will this relationship change prove to be temporary or more structural? I would say temporary, as the link between the two is so fundamentally basic. But it has taken longer to resolve itself and normalize due the extraordinary circumstances of Covid.

That is important to consider because I feel unemployment is the lynchpin holding things together right now. The frozen housing market and flat earnings (on aggregate) are headwinds. So either Job Openings pick back up or they fall enough that this relationship re-establishes itself. (which would likely provide the recession many have been expecting)