JOLTS: US Labor Market Slowing

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JOLTS: US Labor Market Slowing

Job openings fell for a third straight month in August for the first time since November 2008 through January 2009. There were 7.051 million available positions according to the latest Job Openings and Labor Turnover Survey (JOLTS) out today, the lowest number since March 2018. That figure also marked a drop of 123,000 from the prior month.

Unfortunately, that was not the only disappointing data out of JOLTS – which is one month delayed – so we’re going to break down our most important takeaways from the report. While most economic commentary you will read calls out levels for JOLTS, we do it differently at DataTrek because you have to adjust for the size of the US labor force. That’s especially important when comparing the data across cycles, as we’ll do now:

#1: Job Openings as a percentage of the labor force was 4.30% in August, down from the record high of 4.68% in November 2018. This figure is still well above levels in the last economic cycle, when this rate only reached a top of 3.26% in April 2006. 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 1.53% in August 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.

#2: Hires as a percentage of the labor force was 3.53% in August compared to the post-recession high of 3.69% in April 2019. In the last cycle, this rate reached a high of 3.68% in July 2006. It then hovered around 3.5% until turning lower around the market’s peak in the fall of 2007.

  • Although the latest hiring data is around levels of the last cycle, it was never able to break higher like job openings.
  • The number of hires also fell by a meaningful 199k to 5.779 million in August.
  • While job openings reflect employer interest in hiring, actually doing so shows businesses remain in healthy shape. That hiring pulled back alongside job openings is not a welcomed development, especially in an economy where employers continue to struggle finding qualified workers.

#3: Quits as a percentage of the workforce was 2.15% in August, slipping from a post-recession high of 2.25% in July 2019.

  • It’s still better than 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.

Moreover, our “Take This Job and Shove It” indicator, or quits to total separations, was 62.5% as of August. In other words, still in solid territory versus the record high of 63.1% in July 2019.

#4: Layoffs and discharges as a percentage of the labor force was 1.09% as of August 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. Ultimately, layoffs and discharges were little changed from the prior month and doesn’t caution alarm.

Overall: we’ll continue to keep an eye on the 3-month consecutive decline in job openings as it signals falling employer demand for new workers, matched by their waning willingness to hire. What’s also troubling is that even with such a big drop in job openings, they still exceeded the number of unemployed workers by over 1 million. In fact, job openings have outnumbered unemployed workers for 18 straight months, which was always the reverse since the start of the time series in 2001. This gap continues to reflect employers’ ongoing difficulty finding qualified workers as repeated in the Fed’s Beige Book that surveys businesses in regional economies across the US.

Bottom line, this was one of the worst JOLTS reports we’ve seen in a while, showing the US labor market is slowing. Even still, we’ll continue monitoring the trends we highlighted as the data can be choppy on a month by month basis.