August JOLTS report was weak, but foreshadows little

 

 - by New Deal democrat

In the past year, in contrast to much other data in the jobs sector, the JOLTS reports have been very much consistent with a “soft landing” jobs scenario. In the August report released this morning, the trend weakened slightly.

As a quick refresher, this survey decomposes the employment market into openings, hires, quits, and layoffs. So to begin, here are job openings, hires, and quits all normed to 100 as of just before the pandemic:

I regard openings are “soft” data. While they have trended down for several years, they have remained above their pre-pandemic levels, and are not of much concern to me. They improved slightly this month. The trend for the past 15 months has been flat to slightly downward. Meanwhile both openings and quits declined, the latter to the lowest level since December 2024, but the former came in at the lowest level since June 2015 except for June 2024 and the pandemic lockdown months! These are both “hard” data, and were both weaker readings.

Now let’s look at several components are slight leading indicators for jobless claims, unemployment and wage growth.

Layoffs and discharges, which have trended slightly higher since last summer, but have been rangebound since last autumn, remained so again, although the three month average was the highest in the past 12 months:

This generally accords with both the increase in the unemployment rate in 2023-24, as well as its plateauing this year (red, right scale), as well as the recent trend in continuing jobless claims.:

Next, the quits rate (left scale) typically leads the YoY% change in average hourly wages for nonsupervisory workers (red, right scale):

In August the quits rate declined slightly, tying its lowest in the past 12 months. This suggests that nominal wage growth may decelerate slightly further in the next several months.

Finally, I want to discuss why I don’t pay much attention to the “Beveridge curve,” which is the relationship between job openings divided by the number of unemployed, and the unemployment rate.

In the past several months there has been some modest hysteria about the number of unemployed exceeding the number of job openings (i.e., the ratio has fallen below 1:1), leading to speculation that the unemployment rate will increase.

But the historical view shows that there is no magic ratio of the Beveridge curve which is consistent with rising or falling unemployment. Rather, it is the *trend* in openings vs. the number of unemployed which has generally correlated with the *trend* in the unemployment rate. As shown below, with the Beveridge curve inverted for ease of comparison, the ratio was *always* below 1:1 for the entire period before 2018, and yet there were two extensive recoveries during which the unemployment rate declined:

Now here is the post-pandemic view. Again, we see that the *trends* correlate well, but there is nothing magic about the 1:1 level:

Just like the layoffs and discharges metric, this suggests that the unemployment rate may increase slightly. 

In short, this was a weak report. But it was a report for August, and we already have the August jobs report. It tells us very little about what to expect for September (if it is released, given the likelihood of a government shutdown before then), except that possibly the unemployed ent rate may increase.

Repeat home sales as measured by Case Shiller and the FHFA confirm price deflation

 

 - by New Deal democrat

Last month the indexes of repeat home sales from the FHFA and S&P Case Shiller were the final confirmation that the housing market was in deflation.

That continued in this morning’s reports for July. On a seasonally adjusted basis, in the three month average through June, both the Case-Shiller national index (light blue in the graphs below) and the FHFA purchase index declined -0.1%. The peak for the FHFA index (blue in the graphs below) was in March, while that the Case-Shiller Index (gray) was in February. (note: as per usual, FRED hasn’t updated the FHFA information yet):

The actual *de*flation in the house price indexes has been -0.7% in the FHFA Index and -1.1% in the Case Shiller Index:

On a YoY basis, price gains in both indexes continued to decelerate, at 1.7% for the Case Shiller index, and 2.3% for the FHFA index; but these were the lowest YoY% increases since 2012 for both indexes excluding 5 months in 2023 for the Case Shiller index:

Because house prices lead the shelter component of the CPI by 12 - 18 months, this also indicates that they will continue to decelerate over that period. Here is the same graph as above (/2.5 for scale) plus Owners’ Equivalent Rent from the CPI YoY (red):

The last time the Case-Shiller and FHFA Indexes were in this range, excluding the Great Recession, was in the 1990s, during which time Owners Equivalent rent was in the 2.5%-3.5% range (vs. 4.1% as of the most recent CPI report).

Similarly, the latest “National Rent Report” from Apartment List for August, released yesterday, showed a decline of -0.8% YoY. While this is only new leases, and the combined experimentsl all rent index published by the Census Bureau does not show a decline yet, after two years of YoY declines the trend continues to be that of sustained deceleration:

My conclusion this month is the same as that of last month: all phases of the housing market are either at or near their low points (sales, permits, starts), or declining (prices, construction, employment, and new spec units for sale). What is different is that the manufacturing side of the goods-producing sector has shown renewed vigor in the last couple of months. If that fades as well, it is hard to see how we avoid a recession in the next 12 months.