Just looking at the headline jobs numbers pre-COVID-19, the US labor market seemed strong last year (+178k jobs added each month on average) and especially in January (+214k) and February (+275k) of 2020. We’ve been cautioning you that it had been slowing for months, however. That’s why we always review the Job Openings and Labor Turnover Survey (JOLTS) when it is out each month like today. Even though it is one month delayed, it gives more granular detail than the Employment Situation Report.
Since the most recent JOLTS data is from February, it provides the last baseline for how strong the US labor market was heading into the COVID-19 Crisis. The purpose of today’s review is threefold:
- How robust was the US workforce in February?
- How bad did it get in the last economic cycle?
- How much did the US labor force improve a year after the 2009 lows? And two years later, as the current downturn will hopefully be shorter than during the Financial Crisis?
Here are the answers from the latest edition of JOLTS. 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:
- Dropped to 4.18% in February 2020 compared to the record high of 4.62% in November 2018.
- Peaked at 3.26% in April 2006 and fell to a record low of 1.47% in July 2009.
- Rose to 2.03% in July 2010 and 2.40% in July 2011.
Takeaway: job openings as a percentage of the labor force going into the coronavirus pandemic exceeded peak levels reached in the last two economic cycles. But as we’ve noted for months, this rate had been rolling over since late 2018. We expect the economic fallout from COVID-19 to exacerbate this trend greatly in the coming months.
The 2008/2009 experience shows this rate could fall by +179 basis points from the peak, but it rebounded almost 100 basis points within two years.We expect the current crisis to be worse short-term, but also recover faster. Fortunately, job openings started at a much higher base than during the last economic cycle.
#2: Hires as a percentage of the labor force:
- Edged down slightly to 3.58% in February versus the post-recession high of 3.69% in April 2019. February’s rate was around levels reached in the last cycle, but below the high of 3.68% in July 2006.
- Bottomed at 2.35% in June 2009. (Remember that US equities bottomed in March 2009)
- Increased to 2.68% in June 2010 and 2.85% in June 2011.
Takeaway: it took a long time for employers to start actually hiring again in the last economic cycle. That said, as Nick’s recent analysis showed, there were 1.0 million more workers “on temporary layoff” last month than February which was roughly a third of the total rise in unemployment. Therefore, we should see a quicker uptake in hiring this time around as stores/restaurants/bars/etc. can reopen to customers.
#3: Quits as a percentage of the workforce:
- Fell to 2.13% in February compared to the post-recession high of 2.21% in July 2019. Quits as a percentage of the labor force still bests the high of 2.03% in September 2005 during the last cycle.
- Bottomed at 1.01% in August 2009.
- Increased to 1.20% in August 2010 and 1.33% in August 2011.
Takeaway: quits as a percentage of the workforce is an especially important data point since workers do not tend to voluntarily leave their job unless they have already secured a higher paying and better position. This rate will obviously take a big hit in March, but it will be a key figure to watch to gauge the strength of the recovery and worker confidence once the economy restarts.
#4: Layoffs and discharges as a percentage of the labor force:
- Was essentially unchanged at 1.07% as of February, close to the current cycle low of 1.00% in September 2016.
- Troughed at 1.16% in December 2006 and reached a high of 1.72% in April 2009.
- Fell to 1.13% in April 2010 and 1.16% in April 2011.
Takeaway: layoffs and discharges could spike even higher than in the last cycle, but it is fortunately coming off a near-record low base. It should also drop off quickly as the economy reopens.
#5: Our “Take This Job and Shove It” indicator, or quits to total separations:
- Rose to 62.9% in February compared to the record high of 63.5% in March 2019.
- Peaked at 58.8% in August 2006 and bottomed at 36.5% in April 2009.
- Rose to 48.1% in April 2010 and 47.2% in April 2011.
Takeaway: just like the quits rate, our “Take this job and shove it” indicator will be a critical tell about the strength of the US economic recovery.
Bottom line: although the US labor market had been slowing prior to COVID-19, it remained in robust shape as of February which should help buttress the current crisis. There are also many parts of the economy still running (albeit differently, from home). While the latest crisis should hurt the US economy more than the 2008/2009 experience in the short-term, it should also recover quicker.