JOLTS: US Labor Market Slowdown

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JOLTS: US Labor Market Slowdown

Job openings declined to an 18-month low of 7.02 million in September. That was the takeaway that got a lot of attention from the latest Job Openings and Labor Turnover Survey (JOLTS) out today, but it just scratches the surface of the report.

Here are our key takeaways from JOLTS – which is one month delayed – adjusted 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 4.28% in September, falling further from the record high of 4.68% in November 2018. While the number of available positions fell by 277,000 to 7.02 million in September, the rate of job openings as a percentage of the labor force is still higher than levels reached in the last two economic cycles. That said, it has been rolling over since 2018.

  • In the last cycle, the number of job openings as a percentage of the labor force oscillated around the 3.00% threshold until the US stock market’s peak in October 2007 before falling to a low of 1.47% in July 2009.
  • In the current cycle, this percentage looks like it is dropping towards the 4% threshold, a red flag as it would likely head lower from there. We look to the level of job openings as an early indicator of trouble in the labor market as employers typically withdraw job listings before they start laying off workers.
  • As for why job openings as a percentage of the labor force is so much higher than in the prior two cycles, we think it partly has to do with the fact that it is cheaper, easier and more effective to post available positions particularly online than in the early or mid-2000s. We called the Bureau of Labor Statistics and they were sympathetic to our reasoning. The BLS collects the job opening data the same way it has since the early 2000s as it needs to be consistently gathered. Fair enough, but it’s also important to understand that tech has changed the way in which employers post openings and there has not been an adjustment for that, skewing this figure higher.
  • The most concerning takeaway here is that despite a large fall in job openings, they still surpass the number of unemployed workers by +1.26 million. Job openings have now outnumbered unemployed workers for 19 consecutive months. This gap continues to reflect employers’ ongoing difficulty finding qualified workers as commonly mentioned in the Fed’s Beige Book that surveys businesses in regional economies across the US.

#2: Hires as a percentage of the labor force rose to 3.62% in September versus the post-recession high of 3.69% in April 2019. Both are not too far off levels reached in the last cycle, when it posted a high of 3.68% in July 2006. It then hovered around 3.5% until turning lower when the market peaked in the fall of 2007.

  • Although job openings fell in September, that’s partly because hiring rose by 50,000 to 5.93 million.
  • While job openings reflect employer interest in hiring, actually doing so shows businesses remain in healthy shape. After pulling back in August, a pickup in hiring in September is more encouraging especially as anecdotal Fed reports mention that employers still struggle finding qualified workers.

#3: Quits as a percentage of the workforce fell to 2.13% in September, down from the post-recession high of 2.25% in July 2019.

  • The number of quits declined for a second straight month, down 103,000 to 3.50 million.
  • Quits as a percentage of the labor force still bests the high of 2.03% in September 2005 during the last cycle, which occurred long before the market’s peak in October 2007.
  • In terms of what to look out for next, quits as a percentage of the labor force in the last cycle chopped around the 2% threshold until turning lower during the fall of 2007 when the market topped out. The number to watch here: dropping below 2% like in the last cycle.
  • This is an especially important figure given that workers do not tend to voluntarily leave their job unless they have already secured a higher paying/better position. That’s why it was former Fed Chair Janet Yellen’s reportedly favorite measure of the US labor market because it reflects economic confidence.

#4: Layoffs and discharges as a percentage of the labor force increased to 1.20% as of September compared to the current cycle low of 1.00% in September 2016. In the prior cycle, it bottomed at 1.16% in December 2006 and reached a high of 1.72% in April 2009.

In September, layoffs and discharges increased by 152,000 to 1.96 million, up 8.0% y/y. That was a bigger than usual move, so we’ll look towards the next JOLTS report to see if it forms a trend to caution alarm.

#5: Our “Take This Job and Shove It” indicator, or quits to total separations, declined to 60.2% in September compared to the record high of 63.1% in July 2019. This was a function of a jump in layoffs and discharges coupled with a drop in quits, sending this ratio to its lowest level since January 2018.

Bottom line: we’ve been warning that US labor market growth is slowing, and this latest edition of JOLTS confirms the trend.