Wednesday, April 12, 2017

Labor Market Conditions Index and JOLTS: late cycle, but no imminent downturn

 - by New Deal democrat

Time for the monthly update of the Labor Market Conditions Index and JOLTs report.  Both of these give more in-depth data on the jobs market.  The reported lags one month, so this week's reports were for February.  While both of these have some merit as leading indicators, the former is recently constructed and back-fitted, so this is the first "real-time" business cycle it is reporting on.  The latter is less than 20 years old, and covers only one complete labor market cycle.  Bottom line: while both are useful, have grains of salt handy.

First, let's take a look at this morning's JOLTs report.  While most people focus on openings (blue in the graph below), it is not really "hard" data, since companies can advertise openings solely for the purpose of collecting resumes.  They might also not be receiving applicants because the pay they are offering is too low.  Thus, I prefer to focus on actual hires (red).  Anyway, here are both:

Both have trended up in the last couple of months, although not strongly. Overall, the trend in both has been sideways for about the last 18 months, reminiscent of 2005-06.  Like so much else, late cycle but not indicative of any imminent downturn.

The trend in quits looks a little more positive:

So that's good.

Turning to the Labor Market Conditions Index, this has been weakly positive or even slightly negative since the beginning of 2016:

As constructed, it has typically had negative values for about a year before any recession, and usually at least to -5 before one is imminent.  So no recession this year is indicated.

Oddly, FRED only shows the value of the m/m "change" in the index.  Doug Short has the history of the absolute values:

Note in the 1980s and 1990s, there were brief downturns without there being any recessions.  This coincided with Fed tightening and loosening within an expansion. What we've been seeing from this index looks once again like late cycle, but with no downturn imminent.