JOLTS: COVID Crisis vs. Great Recession

By admin_45 in Blog

Last Friday’s impressive May jobs report showed the worst has hopefully passed for US employment losses, but how deep of a hole does the labor market need to fill? The Job Openings and Labor Turnover Survey (JOLTS) out today is one-month delayed but captures more granular detail about the state of the US workforce in April than the Employment Situation Report.

In order to assess where hiring needs to take place most aggressively, here are the industries that were hit hardest in March and April combined:

• Leisure and hospitality: 6.5 million layoffs and discharges, 34% of the total.
• Education and health services: 2.3 million, 12%.
• Retail trade: 1.9 million, 10%.
• Professional and business services: 2.1 million, 11%.

The upshot: two-thirds (67%) of total layoffs and discharges were concentrated in these 4 industries during March and April. A couple of points here:

• Almost half (45%) of layoffs and discharges were in retail trade and leisure and hospitality, two industries in which many jobs don’t require a college degree. That means these types of workers may not be able to easily change careers due to skills and geographic mismatches.
  
  These will be key industries to rebuild given that one in five Americans worked in retail or leisure and hospitality pre-COVID, highlighting the importance of reopening economies to get a large portion of the US population reemployed as soon as is safely possible. But they will also be the toughest industries to restore due to continued social distancing guidelines and capacity restraints for service sector establishments.
• Professional/business services and education/health services accounted for over one-fifth (22%) of layoffs and discharges in March and April, but these industries should be able to recover more quickly.

As for the entire US labor market here are the key data takeaways for April, which should mark a bottom/baseline from where it needs to rebuild. Please note that while most commentators look at the levels of each data point in the report, we always adjust it for the size of the US labor force so we can compare current data to prior cycles.

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

• Dropped to 3.22% in April 2020 compared to the record high of 4.62% in November 2018.
• Fell to a record low of 1.47% in July 2009.
• Rose to 2.03% in July 2010 (1 year later) and 2.40% in July 2011 (2 years later).

Takeaway: job openings as a percentage of the labor force in April was still higher than the trough of the last economic cycle. Even still, positions available declined by nearly 2 million from February through April to 5.05 million, or the lowest level since December 2014. This will be an important datapoint to watch as more states reopen their economies and service sector industries are able to offer people their jobs back.

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

• Fell to 2.25% in April versus the post-recession high of 3.69% in April 2019.
• Troughed at 2.35% in June 2009. (Note: US equities bottomed in March 2009)
• Increased to 2.68% in June 2010 (1 year later) and 2.85% in June 2011 (2 years later).

Takeaway: hires as a percentage of the labor force dropped to an all-time low. While there were still 3.5 million hires during what should mark the month with the worst employment data, hires were down 2.3 million from February through April. While it took a long time for employers to start hiring again in the last economic cycle, last Friday’s jobs report already showed a meaningful rebound in industries that need it most, such as leisure/hospitality and education/health.

#3: Quits as a percentage of the workforce:

• Dropped to 1.14% in April versus the post-recession high of 2.21% in July 2019.
• Bottomed at 1.01% in August 2009.
• Increased to 1.20% in August 2010 (1 year later) and 1.33% in August 2011 (2 years later).

Takeaway: quits as a percentage of the workforce did not fall quite as low as during the Great Recession, but it will likely remain depressed as people hold on to their existing jobs given a still-uncertain economic landscape. This will be an important figure to watch to gauge the strength of the recovery and worker confidence as the economy improves.

#4: Layoffs and discharges as a percentage of the labor force:

• Dropped to 4.93% in April from the record high of 7.05% in March.
• Peaked at 1.72% in April 2009.
• Fell to 1.13% in April 2010 (1 year later) and 1.16% in April 2011 (2 years later).

Takeaway: layoffs and discharges fell in April from the month before, a welcome development as the bulk of layoffs should be in the past. It is still much higher than the peak in the prior cycle, but should drop off quicker as the economy continues to reopen and the service sector industry keeps hiring workers back.

#5: Our “Take This Job and Shove It” indicator, or quits to total separations:

• Fell to 18.06% in April, a record low. The all-time high was 63.5% in March 2019.
• Bottomed at 36.5% in April 2009.
• Rose to 48.1% in April 2010 (1 year later) and 47.2% in April 2011 (2 years later).

Takeaway: just like the quits rate, our “Take this job and shove it” indicator will be a critical tell about the strength of the US economic recovery. Ideally, layoffs will continue to abate, businesses will start recovering in earnest, and workers will feel like they can secure better paying positions again.

Bottom line: the number of hires and layoffs/discharges as a percentage of the labor force will have to improve from levels worse than during the Great Recession, and job openings and quits also have a long road ahead. While layoffs have slowed down, attention will now turn to how quickly not just the service sector can rehire workers back, but other industries that experienced spillover effects from COVID-19 as well. Data like this will enable the Federal Reserve to remain accommodative for the near-term.