JOLTS Survey Continues To Unimpress, Showing More Late Cycle Deceleration

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by: Hale Stewart

By New Deal Democrat

I continue to be unimpressed with the JOLTS Survey. Too many observers are, in my opinion, focusing on the soft, least important metric, "job openings," and paying too little attention to the hard numbers of actual hires and quits. Why? Because it is well known now that many companies use phantom openings as a means to chum the waters looking for resumes.

To explore, let's look at job openings compared to the underemployment rate. As the rate of job openings increases, we would expect to see a correlative decrease in underemployment.

There does appear to be a broad correlation between the two, when we measure the rate of change in each YoY:

But while the direction may be the same, in this expansion there have been a lot more job openings than there have been actual hires from the ranks of the underemployed. To show you, in the below graph, I've normed the data to show that in the last cycle, when the underemployment rate was at 10%, job openings were at a 2.5% rate:

Now, even with job openings 1.1% above that level - higher than they ever got in the last expansion, the underemployment rate is still languishing. If there are so many unfilled job openings, why do we still have a high 9.4% underemployment rate? Shouldn't the gap have closed by now?

Turning to the specifics of the just-released December report, here are job openings (blue), hires (green), and quits (red) since the inception of the series:

What should jump out at you is the flattening peak over the last year. This is made more evident when we look at the same data YoY (averaged quarterly to cut down on noise):

All three metrics show deceleration, and one - hires - is actually *down* YoY. This is equivalent to what the JOLTS survey looked like in early 2007, 9-12 months before the onset of the last recession.

To be fair, when we focus on monthly data over the last year, it is clear that as to quits, at least, the negative number may have been the result of an outlier reading in December:

In the one and only complete cycle since the series began, hires and quits peaked first, while YoY job openings held up until nearly the end. This time around, it appears openings may have turned before quits.

Bottom line: Hiring increasingly shows late cycle deceleration, and now quits *may* be following, although that has not translated into increased discharges yet. Indian Summer continues for now.

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