Wednesday, May 9, 2018

With more job openings, why isn't hiring being given a JOLT?

You may have seen the headline this week that said "U.S. job openings hit record high, more workers quitting." And I wanted to go into this, because it gives an interesting insight into the state of our good-but-not-great jobs market.

The information came from the Job Openings and Labor Turnover report- or JOLTS. The JOLTS report gives extra insight into the jobs market beyond the net totals that get released in the early part of every month (including April’s report, which came out last Friday), as it breaks down the level of hiring, job leavers, and even how many jobs are available.

And it was the “jobs posted” part of the JOLTS report that got some attention in the financial news this week.
On the last business day of March, the job openings level increased to a series high of 6.6 million. The series began in December 2000. The job openings rate was 4.2 percent in March. The number of job openings increased for total private and edged up for government. Job openings increased in a number of industries, with the largest increases in professional and business services (+112,000), construction (+68,000), and transportation, warehousing, and utilities (+37,000). The number of job openings increased in the Northeast and Midwest regions.
The rate of construction openings (defined as current jobs + openings) is also notably more than this time last year (3.4% vs 2.5%), underscoring the needs. Health care/social assistance is also a place where there are notable shortages, with the largest rate of openings of any job sector in the country (5.6%), and 1.17 million openings overall.

But despite a large number of jobs being opened, hiring isn’t following. The rate of hires has barely changed in the last 12 months (3.6% vs 3.7%), and March actually had 86,000 fewer hires on a seasonally-adjusted basis than February did, and nearly 149,000 fewer than January. The areas with the largest number and best rate of hires were in high-turnover areas such as bars, restaurants, lodging, and entertainment (6.2%).

But will they actually hire someone?

Among more stable, full-time work, the JOLTS report indicates that the rate of hiring in mining/logging (5.2%) and durable goods manufacturing has picked up from what we saw this time last year (2.8% vs 2.2% in March 2017). Conversely, health care seems to be struggling to fill its many openings (2.9%).

The flip side of that is that manufacturing and mining are also seeing a rising amount of separations, which means that overall job growth is not that big.

The number of total separations was little changed at 5.3 million in March. The total separations rate was 3.6 percent. The number of total separations was little changed for total private and for government. Total separations decreased in finance and insurance (-34,000). The number of total separations was little changed in all four regions.

But a positive sign in that “separations” stat is that more people are leaving jobs because they retired and/or left on their own for other reasons (aka “quits”), which is better than layoffs.
The number of quits edged up to 3.3 million in March. The quits rate was 2.3 percent. The number of quits edged up for total private and was unchanged for government. Quits increased in other services (+71,000). The number of quits increased in the Midwest region. (See table 4.)

There were 1.6 million layoffs and discharges in March, little changed from February. The layoffs and discharges rate was 1.1 percent in March. The number of layoffs and discharges was little changed for total private and for government. Layoffs and discharges decreased in health care and social assistance (-35,000). The number of layoffs and discharges was little changed in all four regions. (See table 5.)

Compared to March 2017, March 2018 had 105,000 fewer layoffs but 200,000 more quits, which is what happens when a job market hits full employment and employers are still looking to hire.

Now the question becomes “Which pattern breaks first?” Employers claiming jobs are open but not hiring many people to fill them, and are not increasing pay (as shown by the mediocre 2.6% wage growth in the last jobs report). So will the pace of hiring pick up to match those openings, or will employers decide to pocket their now-higher profits due to the tax cuts in DC, and we see openings decline as hirings have done in the last 2 months?

I fear I know this answer (especially with higher inflation looming for materials), but the resolution of the “higher openings, higher quits, but not higher hiring” quandary is something to look for over the next few months.

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