Wednesday, January 9, 2019

November JOLTS report shows surprising (relative) weakness

- by New Deal democrat

The JOLTS report on labor is noteworthy and helpful because it breaks down the jobs market into a more granular look at hiring, firing, and voluntary quits. Its drawback is that the data only goes back less than 20 years, so from the point of view of looking at the economic cycle, it has to be taken with a large dose of salt.

With that disclaimer out of the way, Monday's JOLTS report for November was surprisingly soft relative to the strength of the overall jobs gain for that month, as it show most of the series continuing to decline from their August peaks (in the case of hires, October):
  • Quits declined for the 3rd month in a row, and are about 7% off peak.
  • Hires declined were about 3% off their peak set one month ago.
  • Total separations are off 5% from August.
  • Job openings are a little less than 5% below August.
  • Layoffs and Discharges are up 7% from their recent low (a bad thing), and had one of their three worst months in the last year.

Let's update where the report might tell us we are in the cycle.

First, below is a graph, averaged quarterly through the third quarter, of the *rates* of hiring, quits, layoffs, and openings as a percentage of the labor force since the inception of the series (layoffs and discharges are inverted at the 3% level, so that higher readings show fewer layoffs than normal, and lower readings show more):

During the 2000s expansion:
  • Hires peaked first, from December 2004 through September 2005
  • Quits peaked next, in September 2005
  • Layoffs and Discharges peaked next, from October 2005 through September 2006
  • Openings peaked last, in Spril 2007
By contrast during and after the last recession:
  • Layoffs and Discharges troughed first, from January through April 2009
  • Hiring troughed next, in March and June 2009
  • Openings troughed next, in August 2009
  • Quits troughed last, in August 2009 and again in February 2010
Now here's what the four metrics look like on a monthly basis for the last five years: 

As indicated above, job openings, quits, and hires all surged higher through August of this year. In the three months since then there's been at least a temporary downturn.
Next, here's an update to the simple metric of "hiring leads firing," (actually, "total separations"). Here's the long term relationship since 2000 through Q3 of this year: 

Here is the monthly update for the past two years measured YoY:

In the 2000s business cycle, hiring and then firing both turned down well in advance of the recession. Time will tell whether the recent decline in separations is just noise, or the start of a more significant downtrend. If it is significant, that would be a break from the pattern in the 2000s expansion. 

Finally, let's compare job openings with actual hires and quits. As you probably recall, I am not a fan of job openings as "hard data." They can reflect trolling for resumes, and presumably reflect a desire to hire at the wage the employer prefers. In the below graph, the *rate* of each activity is normed to 100 at its August 2018 value, since that has been the recent peak:

When I first presented this graph, I noted that while the rate of job openings is at an all time high, the rate of actual hires has only just reached its normal rate during the several best years of the 2000s expansion, and is below its rate at the end of the 1990s expansion. 

Through August both hires and quits have accelerated, with hiring decisively above its level from the last expansion -- although, as you can see in the first graph above, the *rate* of hiring remains below that of the 2000s expansion. My take has been that employees have reacted to the employer taboo against raising wages by quitting at high rates to seek better jobs elsewhere. If the dam is finally breaking, we should see the hiring rate increase, and quit rate level off. Since hires are the only metric that have made a new high since August, and have declined the least since that high, this may be happening.  

In summary, the November JOLTS report showed an employment market backing off its best levels. Is this the start of a trend? While my expectation is that this will start to cool down during the first six months of this year as a slowdown begins to take hold, in the near term that is balanced by the simple fact that the JOLTS report for December when it is released next month is going to reflect the roughly 300,000 net jobs gained last month, and so is likely to be equally strong.