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This is fine, the intention is clear for the user, they want to enter a label just mistyped the first letter (or more). It is ok to have the suggestion visible.
But why should we keep it displayed? We already have the top most used suggestion under the textbox.
If it is helpful for the user then why not make this list visible as soon and the textbox is focused.
I checked how others do it. They either open the suggestions as soon as the control has the focus or close it when the input field is empty.
Since the top suggestions would be covered if opened the suggestions on focus, I would go with your suggestions to close it when the field is empty.
How to reproduce:
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