Yellen Will Not Be Pleased: Job Openings Miss Most On Record, Tumble To 2015 Levels
Considered Janet Yellen’s “favorite job market indicator”, today’s JOLTS report revealed an unpleasant headline print: in August the number of job openings tumbled by 388K, the most in 12 months, to 5.443 million, the lowest print since December 2015, and the biggest miss to expectations on record which stood at 5.727MM. One reason for the disappointing print may be that last month’s data was revised substantially higher to 5.831MM.
The ratio of unemployed persons per job opening was 1.38 in August 2016. When the most recent recession began (December 2007), the number of unemployed persons per job opening was
1.9. The ratio peaked at 6.6 unemployed persons per job opening in July 2009 and has trended downward since.
Among the jobs seectors reporting the biggest drop in job openings were Construction (from 225K to 184K), Manufacturing (379K to 337K), Government (546K to 507K), and mostly Professional and Business services which tumbled by 223K to 989K from 1212K.
Aside from the headline openings print, the internals were not too remarkable, as hires dropped from 5,258K to 5,210, offset by a similar drop in Separations which declined from 4.991K to 4.954K. As a result, the net separations series continued to track the monthly payrolls closely.
As we have noted previously, absent a substantial rebound in hiring, payrolls may have reached an inflection point, with lower prints expected in the coming months.
Putting hires and job opening in context,the number of hires (measured througout the month) has exceeded the number of job openings (measured only on the last business day of the month) for most of the JOLTS history. Since February 2015, this relationship has changed as job openings have outnumbered hires in most months.
At the end of the most recent recession in June 2009, there were 1.2 million more hires throughout the month than there were job openings on the last business day of the month. In August 2016, there were 233,000 fewer hires throughout the month than there were job openings on the last business day of the month.
Now that openings appear to be inflecting downward, we anticipate hiring will likewise slowdown.
On the separations side, there was little activity in the closely followed Quits rate, which was virtually unchanged at 2,981K, down just 4K.
Finally, the always entertaining Beveridge curve:
The graph plots the job openings rate against the unemployment rate. This graphical representation is known as the Beveridge Curve, named after the British economist William Henry Beveridge (1879-1963). The economy’s position on the downward sloping Beveridge Curve reflects the state of the business cycle.
During an expansion, the unemployment rate is low and the job openings rate is high. Conversely, during a contraction, the unemployment rate is high and the job openings rate is low. The position of the curve is determined by the efficiency of the labor market. For example, a greater mismatch between available jobs and the unemployed in terms of skills or location would cause the curve to shift outward (up and toward the right).
From the start of the most recent recession in December 2007 through the end of 2009, the series trended lower and further to the right as the job openings rate declined and the unemployment rate rose. From 2010 to the present, the series has been trending up and to the left as the job openings rate increased and the unemployment rate decreased.
In August 2016, the unemployment rate was 4.9 percent and the job openings rate was 3.6 percent. This job openings rate corresponds to a higher unemployment rate than it did before the most recent recession.
Overall, the report was notably on the disappointing side, which likely explains why stocks are now trading at their intraday highs.
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