Take This Job And… Pandemic Edition

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Take This Job And… Pandemic Edition

One of our favorite measures of US worker confidence rose to a record high in September based on the latest Job Openings and Labor Turnover Survey out today. We call this our “Take this job and shove it indicator” because it is a ratio of quits (i.e. number of people voluntarily leaving their jobs) to total separations (i.e. quits, layoffs, discharges). The higher the ratio the better, because it means more people are quitting their jobs usually due to finding a better paying position. The lower the ratio, the more workers are getting let go or are not confident enough in the economy to seek out more attractive work opportunities.

We realize it may seem odd that quits to total separations is at an all-time high of 64.7 pct in light of the current recession, but it highlights some unique contours of the current labor market environment. For example:

  • Quits as a percentage of the workforce rose to 1.88 pct in September, up from a post-recession low of 1.20 pct in April. This rate is already about two-thirds of the way back to where it was in January (2.17 pct).

    That’s a very quick rebound compared to the last economic cycle. For example, quits troughed much lower at 1.01 pct in August 2009, and only rose to 1.20 pct in August 2010 (1 year later) and 1.33 pct in August 2011 (2 years later).
  • Layoffs and discharges as a percentage of the labor force fell to a record low of 0.83 pct in September, down from its all-time high of 7.05 pct in March.

    That’s an especially sharp drop in layoffs in a short period of time. For example, layoffs and discharges as a percent of the labor force peaked at a lower rate of 1.72 pct in April 2009, but also took longer to decline thereafter. It fell to 1.13 pct in April 2010 (1 year later) and 1.16 pct in April 2011 (2 years later).

Here’s what is going on:

1) The bounce back in workers voluntarily leaving their jobs is unusually fast. Anecdotal evidence from the Fed’s Beige Book reports show this largely stems from workers’ concerns about contracting the virus in customer-facing, service sector-oriented jobs as well as child-care commitments. News that a vaccine is on the horizon will enable a share of the workers who left their jobs out of fear or their need to tend to family return to the labor force next year. Hopefully, then workers will mostly quit their jobs for better opportunities as the economy heals.

2) There were huge rounds of layoffs in March and April, so the bulk of layoffs should be in the past.

All in all, the US labor market is still working through some challenging dynamics given the unique conditions that the public health crisis presents, but two more key metrics from JOLTS shows the US labor market is actually well on its way to operating normally. Consider:

#1: Job openings as a percentage of the labor force:

  • 4.02 pct in September, up from the post-recession low of 3.19 pct in April but also lower than 4.19 pct in July. Even still, it’s not far off the 4.26 pct reading in January before the pandemic hit.
  • In the last cycle, this rate declined to a record low of 1.47% in July 2009, and only rose to 2.03 pct in July 2010 (1 year later) and 2.40 pct in July 2011 (2 years later).

Takeaway: these numbers can be choppy month-to-month, but job openings have recovered very quickly and are higher than the peaks of the last two economic cycles despite the US still being in a recession. We keep seeing this elevated interest in hiring convert into near-term employment, so this should continue to benefit overall employment trends in the coming months.

#2: Hires as a percentage of the labor force:

  • 3.67 pct in September, up from the post-recession low of 2.59 pct in April and actually higher than 3.60 pct in January before the public health crisis.
  • By comparison, hiring as a percentage of the workforce troughed at 2.35 pct in June 2009. (Note: US equities bottomed in March 2009, and even April 2020 was better than June 2009). This rate only increased to 2.68 pct in June 2010 (1 year later) and 2.85 pct in June 2011 (2 years later).

The upshot: the latest JOLTS data shows that not only does the labor market continue to recover much faster than prior cycles, but it is returning to relatively normal conditions. While the unemployment rate remains high at 6.9 pct, jobless workers should continue to get pulled back into the labor force over the next 12 to 18 months given the fast rebound in job openings. While the public health crisis created sharp and painful dislocations in the US workforce, the JOLTS data does not point to lasting structural damage. It will take time to heal, but is well on its way as also shown in the last Employment Situation Report with more jobs added than expected (638k) and greater participation (+0.3 percentage points to 61.7 pct).