Parsing a Weak JOLTS Report
The August JOLTS release was a pretty big disappointment. Expectations were for 5.8 million job openings while the actual data came in at 5.44 million. Additionally, the job openings level and the job openings rate are both at YTD lows. Why this weak release is concerning is that job openings tend to lead the payrolls by about six months. These two series are highly highly correlated (97% over the past 10 years) and while job openings have been moving sideways for about a year, nonfarm payrolls have continued to expand. This relationship would suggest that the labor market will begin to weaken in the near future. Also, today’s release needs to be placed in the context of the weak labor market conditions index that came out yesterday. According to the Fed’s own index, the labor market has been deteriorating all year and is in the midst of its weakest run of data since 2009.
Diving into this report a bit deeper and looking at job openings by industry, we see that one of the highest paying industries, professional and business services, actually posted its largest decline on record. Job openings in professional and business services declined by 223,000 in August.
Finally, a silver lining can be found by looking at the relationship between the quit rate and average hourly earnings. The quit rate is pointing towards an acceleration in the year-over-year change in average hourly earnings over the next few quarters.