It’s clear that both Fed Chair Powell and Treasury Secretary Yellen are most focused on helping get as many Americans back to work as fast as they can and are willing to use every tool at their disposal. That’s why Powell underplayed inflation concerns in his recent WSJ interview and Yellen – a labor economist – pushed hard for the maxed-out fiscal stimulus package that President Biden just signed.
We monitor a slew of labor market datasets, such as the Job Openings and Labor Turnover Survey (JOLTS) out today, as they will continue to heavily influence both monetary and fiscal policy. JOLTS is one of Treasury Secretary Yellen’s preferred assessments of the US workforce, so that’s what we’ll dig into today as it is more detailed than the Employment Situation report even though it is one month delayed. January is the latest available month of data, so let’s take stock of where the US labor market stood at the start of the New Year versus the pandemic lows and prior cycles.
(Just note that while most commentators look at the levels of each data point in the report, we always adjust it for the size of the US labor force so we can compare current data to prior cycles.)
#1: Job openings as a percentage of the labor force:
- Rose to 4.32 pct in January 2021 from 4.21 pct in December, and close to 4.35 pct a year earlier in January 2020 before lockdowns.
- That’s a post-pandemic high and up from the low of 2.96 pct in April 2020.
- It also exceeds the peaks of the last two economic cycles: (3.17 pct in April 2006 and 3.64 pct in January 2001). The record high was 4.65 pct in November 2018.
Takeaway: that job openings as a percentage of the labor force nearly matched the rate reached before the pandemic hit is a positive signal for hiring in the coming months. That said, anecdotal evidence from the Fed’s Beige Book reports continue to note labor shortages with their business contacts struggling to attract qualified workers. They report childcare and virus-related issues as two major contributing factors. These issues should abate as schools reopen and more Americans receive vaccines.
#2: Hires as a percentage of the labor force:
- Dropped to 3.31 pct in January 2021 from 3.37 pct in December.
- That’s up from the pandemic low of 2.52 pct in April 2020, but down from 3.63 pct in January 2020.
- It has now trended back below levels reached in the last two economic cycles. The highs were 3.68 pct in July 2006 and 3.98 pct in January 2001. The record high was 5.23 pct in May 2020.
Takeaway: the rate of hiring slowed for a third straight month, which is concerning given the improvement in job openings. For example, hires dropped by 110k to 5.30 million in January 2021 versus 5.97 million a year prior, while job openings jumped by 165k to 6.92 million versus 7.15 million in January 2020.
#3: Quits as a percentage of the labor force:
- Dropped to 2.07 pct in January 2021 from 2.12 pct in December.
- That’s up from the post-pandemic low of 1.35 pct in April 2020, and slightly down from 2.17 pct a year prior.
- It still bests the peak of the last cycle (2.03 pct in September 2005). The record high was 2.26 pct in January 2001.
Takeaway: under normal economic times, Americans voluntarily leaving their jobs is a positive sign about worker confidence since people don’t usually quit unless they have better opportunities lined up. Quits have rebounded unusually quickly just now, however, due to the unique nature of the public health crisis. Anecdotal evidence from the Fed’s Beige Book reports show many Americans have left their jobs due to fears of infection or childcare/virtual schooling needs.
#4: Layoffs and discharges as a percentage of the labor force:
- Fell to 1.05 pct in January 2021 from 1.14 pct in December.
- That’s down from the post-pandemic high of 8.02 pct in March 2020, and roughly the same as 1.09 pct in January 2020.
- It’s lower than the last economic cycle (trough of 1.16 pct in December 2006). The record low was 0.97 pct in September 2020.
Takeaway: fortunately layoffs remain low.
#5: Our “Take This Job and Shove It” indicator, or quits to total separations:
- Increased to 62.39 pct in January 2021 from 61.04 pct in December.
- Up from 17.88 pct in April 2020, and roughly the same as 62.44 pct in January 2020.
- It’s also comfortably above the highest levels of the last two economic cycles.
Takeaway: this was a function of a greater drop in layoffs and discharges than quits. The most recent Fed Beige Book said its business contacts are finding it difficult to retain employees. The reasons listed ranged from losing workers to remote work opportunities to childcare responsibilities, especially for women.
Bottom line: employers may want to add people to their payrolls, but their inability to find qualified workers given the unique constraints of the public health crisis will continue to dampen hiring until more people receive the vaccine and the economy reopens further. Many American adults also remain sidelined from the workforce – especially women – as the number of Americans who consider themselves in the labor force has declined by 4.2 million people since February 2020. That decreases the pool of potential talent for reasons outside many people’s control. Fed Chair Powell and Treasury Secretary Yellen understand all these challenging dynamics will take many months to resolve, which is why they are trying to be as supportive as possible.