JOLTS: Lots of Openings, Not Enough Hires

By admin_45 in Blog

“Job openings unexpectedly rebounded in October.” That was the headline you most likely read about the latest US Job Openings and Labor Turnover Survey – which is one month delayed – out today. While true and a sign of labor market strength, actual hiring took a turn for the worse:

• The number of job openings increased by 235,000 to 7.27 million in October after falling by 269,000 in the prior month.
• Conversely, hires declined by 187,000 to 5.76 million in October, after rising by 67,000 in September. This bears watching, but we also note that these numbers can be choppy.
• This dichotomy highlights an ongoing tension in the current labor market as highlighted by anecdotal Fed reports: employers continue to struggle finding qualified workers.
  
  To put this in perspective, October marked the 58th straight month that job openings have exceeded hires. Prior to June 2014, hires always outnumbered job openings every single month back to when the time series started in 2000. But in the latest month, there were as many as +1.5 million more job openings than hires.

Bottom line: while employers want to hire at healthy levels, their ability to do so remains challenged. As for the rest of our key takeaways from the latest JOLTS report, here they are (adjusted 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 rose to 4.42% in October compared to the record high of 4.68% in November 2018. The rate of job openings as a percentage of the labor force bests levels reached in the last two economic cycles, but has been rolling over since 2018.

• In the last cycle, the number of job openings as a percentage of the labor force oscillated around the 3.00% threshold until the US stock market’s peak in October 2007 before falling to a low of 1.47% in July 2009.
• In the current cycle, this percentage looks like it is dropping towards the 4% threshold, a red flag as it would likely head lower from there. Therefore, October’s bump higher was a welcomed development as we look to the level of job openings as an early indicator of trouble in the labor market since employers typically withdraw job listings before they start laying off workers.

#2: Hires as a percentage of the labor force dropped to 3.51% in October versus the post-recession high of 3.69% in April 2019.

• The current rate is still around levels reached in the last cycle, but lower than the high of 3.68% in July 2006.
• In the prior cycle, hires as a percentage of the workforce hovered around 3.5% until turning lower when the market peaked in the fall of 2007.
• While job openings reflect employer interest in hiring, actually doing so shows businesses remain in healthy shape and are able to match candidates with their qualifications. Clearly the latter point was an issue in October.

#3: Quits as a percentage of the workforce edged up to 2.14% in October compared to the post-recession high of 2.25% in July 2019.

• The number of people voluntarily leaving their job rose after falling for two straight months, up by 41,000 to 3.51 million.
• Quits as a percentage of the labor force still bests the high of 2.03% in September 2005 during the last cycle, which occurred long before the market’s peak in October 2007.
• Looking ahead, quits as a percentage of the labor force in the last cycle chopped around the 2% threshold until turning lower during the fall of 2007 when the market topped out. The number to watch here: dropping below 2% like in the last cycle.
• This is a particularly important figure given that workers do not tend to voluntarily leave their job unless they have already secured a higher paying/better position. That’s why it was former Fed Chair Janet Yellen’s reportedly favorite measure of the US labor market because it reflects economic confidence.

#4: Layoffs and discharges as a percentage of the labor force fell to 1.08% as of October versus the current cycle low of 1.00% in September 2016. In the prior cycle, it bottomed at 1.16% in December 2006 and reached a high of 1.72% in April 2009.

#5: Our “Take This Job and Shove It” indicator, or quits to total separations, increased to 62.3% in October compared to the record high of 63.1% in July 2019. This was a function of a rise in quits and a fall in layoffs and discharges, a positive combination.

Bottom line: we warned in our last review of JOLTS that it showed US labor market growth was slowing, but this latest edition turned that outlook modestly positive with a rebound in job openings and quits. That said, even with a tight labor market, the mismatch between employers’ requirements and workers’ qualifications continues to constrain hiring. For example, October marked the 20th consecutive month that job openings exceeded the number of unemployed workers. Prior to that streak, the opposite was always true. If this continues to be a problem in such a robust labor market, the next recession will prove especially difficult.