Wednesday, February 12, 2020

Declining Job Openings Occurring From A High Level

In Tuesday's release of the Job Opening and Labor Turnover Survey (JOLTS) job openings declined 364,000 to 6.4 million. This is a decline in openings from a high level of 7.6 million reached in November 2018. The blue line in the below chart represents hires in December and this line continues to trend higher at a fairly steady pace. In other words the pace of hiring has not slowed.

The number of unemployed individuals continues to be lower than the number of job openings, an indication that the labor market remains tight. Although the JOLTS report is not a long dated one, since the data has been available, the number of job openings tends to be less than those unemployed. That has not been the case since 2015 and openings may be trending to a level more in line with the prior data.

In a post about a week ago, I noted the improving participation rate across most all of the age groups. The length of this economic expansion and the tight market appears to be drawing individuals off the sideline and back into the labor force; thus enabling firms to fill open positions.

Another measure providing insight into the labor market tightness is the unemployment rate for college graduates over 25 years of age. The current unemployment rate for the group is a low 2%; thus, providing some leverage for the graduates versus companies looking to fill open positions. This does not necessarily mean a candidate can leverage this tightness to a higher wage, but it can mean companies need to better demonstrate their attractiveness via training and career path opportunities for these new graduates.

In the NFIB Small Business Optimism Survey Report released Tuesday, 49% of small businesses cite few or no qualified applicants. This percentage remains at a high level as seen with the green line in the below chart. Several other labor market variables garnering a high level of responses from business owners is shown in the chart as well. More signs indicative of a tight labor market.

One chart worth tracking that historically has provided insight into the timing of an economic slowdown is shown below. This chart displays the U-3 unemployment rate versus the 12-month moving average of the same rate. When the unemployment rate crosses the average line from below, this can be a signal of a weakening labor market, which has occurred near the beginning of recessions. As seen on the chart, the red circles denote false signals. In this most recent expansion more false signals have been triggered though.

Certainly, the decline in openings is a variable to include in one's recession watch toolbox. It is not the only one though and other economic data to date is falling into the neutral or non-recessionary columns.

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