JOLTS: Labor Market Healthy, But Slowing

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JOLTS: Labor Market Healthy, But Slowing

Lost in the shuffle of last Friday’s jobs report for July: the total US civilian labor force of 163.4 million marked a record high after 370,000 Americans joined the workforce. That sent the overall participation rate up to 63% – its highest level since March – reflecting a particularly robust economy as hundreds of thousands of Americans grew confident that they could attain employment.

The party can’t last forever, however, which is why we review the Job Opening and Labor Turnover Survey (JOLTS) every month for greater detail on the state of labor market. Here is the newest JOLTS data out today for June 2019 (latest available data) and which cautionary levels we’re watching that signal trouble:

(Note: Most economic commentary you will read calls out levels for JOLTS, but we do it differently at DataTrek because you have to adjust for the size of the labor force. That’s especially important when comparing the data across cycles as we do below.)

#1: Job Openings as a percentage of the labor force was 4.51% in June, down from the record high of 4.68% in November 2018. That’s still well above the last economic cycle, when the rate only reached a top of 3.26% in April 2006. It hovered 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.

The level to watch: should available positions as a percentage of the labor force break down to 4.0%, it’s likely rolled over and headed lower. This is important to keep an eye on as employers typically rescind job listings before they start laying off workers as captured by the unemployment rate.

#2: Hires as a percentage of the labor force was 3.50% in June, down from the post-recession high of 3.69% in April 2019, but similar to levels in the prior cycle. This rate reached a high of 3.68% in July 2006 during the last cycle, and then chopped around 3.5% until turning lower around the market’s peak in the fall of 2007.

The level to look for here is a continued fall from 3.5% to breaking through 3.0% like in the last cycle. Job openings may reflect employer interest in hiring, but actually doing so shows businesses in good shape and confidence in the economy. Similar to delisting job openings, declining job offers provide another lens into eventual layoffs amid a weakening economy.

#3: Quits as a percentage of the workforce was 2.11% in June, also down from the post-recession high of 2.16% in April 2019. This rate was 2.03% in September 2005 during the last cycle, long before the market’s peak in October 2007. It oscillated around the 2% threshold until turning lower during the fall of 2007 when the market topped out.

Given that people do not tend to voluntarily leave their job unless they have already lined up a higher paying position, former Fed Chair Janet Yellen reportedly favored this measure of the US labor market because it reflects economic confidence. The number to watch here: dropping below 2%.

Additionally, our ‘Take This Job and Shove It” indicator, or quits to total separations, was at 62.6% as of June versus the record high of 63.0% in January 2019. Rolling over below 60% would concern us.

#4: Layoffs and discharges as a percentage of the labor force bottomed at 1.16% in December 2006 and reached a high of 1.72% in April 2009. The current cycle low was 1% in September 2016 and is currently at 1.04% as of June, solidly in the clear.

Here are our takeaways from this data to wrap up:

  • The labor market remains healthy, with job openings as a percentage of the workforce near record highs and hires around levels of the best years of the last economic cycle. Quits as a percentage of the labor force also remain above levels than even the last cycle. That said, these measures have been weakening over the past few months.
  • Our biggest concern is the wide gap between the number of job openings and unemployed workers. Job openings have exceeded unemployed workers for 16 straight months, which was always the reverse since the start of the time series in 2001. Employers may want to hire at record levels, but many are struggling finding qualified workers as continually noted in the Fed’s Beige Book that surveys businesses in regional economies across the US.

Overall, the labor market is healthy, but slowing somewhat. All those latest additions to the workforce in July may also have more trouble getting hired than they anticipated. That’s concerning for the next recession and as more jobs get automated over the next decade and beyond.