Tuesday, September 10, 2019

Data Around Jobs Suggests Continued Economic Growth

The NFIB Small Business Optimism Index released this morning was largely a positive report in my view with the Index reported at 103.1, but down 1.6 points. The Index level remains in the top 15% of readings for the Optimism Index. Where the report shows weakness it is mostly in the expectations areas. For example, the survey notes, "optimism slipped because fewer owners said they expect [emphasis added] better business conditions and real sales volumes in the coming months." Related to expectations was NFIB President and CEO, Juanita Duggan expressing in the report,
"In spite of the success we continue to see on Main Street, the manic predictions of recession are having a psychological effect and creating uncertainty for small business owners throughout the country. Small business owners continue to invest, grow, and hire at historically high levels, and we see no indication of a coming recession."
In other words it would seem the drumbeat of negativity and talk of a recession is impacting expectations and sentiment. These are a few examples how the economy can get talked into a recession.

Later in the morning the Job Openings and Labor Turnover Survey (JOLTS) was released showing job openings were essentially unchanged at 7.2 million versus the prior month. Openings were down about 225,000 for the same period a year earlier, July 2018.
  • The preliminary report for Total Separations shows this category was up 246,000 to 5.759 million.
  • The largest increase was in the voluntary quit category, up 130,000. If one looks at year over year, only quits are higher. Individuals generally quit their job if they believe they can find a better/higher paying one. With 'Quits' continuing to increase, this is certainly an indication of a strong job market. Layoffs and other separations are lower year over year.
  • On a rolling 12-month basis, Hires less Separations total 2,554,000.

On a monthly basis, Hires for July exceed Separations by 194,000. In July of 2018 the Hires less Separations equaled a lower 158,000.

As noted in the JOLTS report net employment change results from the relationship between hires and separations:
  • "When the number of hires exceeds the number of separations, employment rises, even if the hires level is steady or declining."
  • "Conversely, when the number of hires is less than the number of separations, employment declines, even if the hires level is steady or rising.
  • "Over the 12 months ending in July, hires totaled 69.6 million and separations totaled 67.0 million, yielding a net employment gain of 2.6 million. These totals include workers who may have been hired and separated more than once during the year."
And finally, back to the NFIB Survey, a record 27% of those surveyed indicated difficulty in finding qualified workers as their number one problem. In total, of those surveyed, 57% reported they had few or no qualified applicants for positions they were trying to fill as seen in the top pane in the below chart.

This data around the job market represents current activity and not expectations. Based on the JOLTS and the NFIB Survey, it seems the job market is certainly tight/strong. It is difficult to image an economy tipping into a recession with this kind of survey data around the job market. I believe much of the angst for the U.S. economy is being influenced by the commentary or headlines around a potential recession. It is possible the U.S. is becoming less synchronized with economies overseas and thus the U.S. can continue to grow in spite of some slower economies abroad. Maybe the U.S. grow is not above trend, but growth nonetheless.

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