The JOLTS report for June increases the likelihood of a significant decline in job growth, a rise in unemployment

– by a New Deal Democrat

Before we get to the June JOLTS report that was released this morning, I wanted to address the general employment trend. Because both of the best short-term leading indicators for employment and unemployment are pointing south.

First, as I’ve written dozens of times over the past 10+ years, consumption drives employment, not the other way around. Specifically, real retail sales lead employment levels by about 3 – 6 months. Here’s the story from 1994 to just before the pandemic:

Here are the last two years:

Flat or even negative year-over-year changes in consumption have historically not been consistent with continued strong employment growth, to say the least. We’ve already seen some deceleration, from an average of 550,000 to 380,000 jobs gained per month, over the past six months, and the chart above strongly supports a much more significant deceleration.

Second, initial jobless claims are an excellent short leading indicator of the unemployment rate, also with a 3 – 6 month lead time. Here’s the story from the 1960s to just before the pandemic:

And here are the last two years:

From its low in late March, the average number of initial jobless claims has risen enough to suggest that a 0.1% or even 0.2% increase in the jobless rate is very close.

Which brings us to the JOLTS report this morning, because for the past few months I’ve been writing that bBecause of the pandemic, there were several million fewer people looking for work, leaving a huge number of jobs unfilled, especially amid a roughly 10% higher jump in demand. This led to a sharp increase in wages, but more to the point, I have further speculated that the momentum will slow down only after some employers throw in the towel and the number of vacancies decreases significantly.

Last month I wrote that “Openings likely peaked in March.” We got confirmation this morning as job vacancies fell for the 3rd month in a row, falling -605,000 in June to 10.698 million; down -10% since March to 11-month low; and only 8.6% higher year-on-year. In other words, they are very likely to be *down* year-on-year next month. Here is the 2-year trend:

Actual hiring also fell -133,000 to a 10-month low. The slowing trend is already easily noticeable:

Both departures and total separations also fell, down -37,000 and -86,000 respectively, to 8-month lows:

The slowdown in voluntary departures is now also evident.

Finally, layoffs and layoffs decreased by -89,000 to 1,327,000, roughly the average over the past 12 months:

While any jobs report can be noisy, it’s much more likely than not that we’ll see a significant further slowdown in job growth, possibly a slight increase in the unemployment rate, and also a slowdown in wage growth in Friday’s jobs report.

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