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12 08 2015 | by Victor Xing | Economics

October JOLTS – a look at labor market flows

Job Openings and Labor Turnover Survey by the Bureau of Labor Statistics is another useful measure of broader labor market conditions.  Three benchmarks in JOLTS are highly watched by investors and policymakers alike: vacancy rate (job openings), hire rate (firms hiring), and quit rate (voluntary separations).  The timing of JOLTS release is typically two days following the monthly Nonfarm Payrolls report, and it comes with a two month lag.  Below is the latest reading from October:
  • Vacancy rate at 3.6% vs. 3.7% prior
  • Hire rate at 3.6%, unchanged vs. prior
  • Quit rate at 1.9%, unchanged vs. prior
Rising vacancy rate amid stagnant hire rate can be interpreted as be a sign of skill mismatch – firms desires to hire but cannot find the candidates they are looking for.  This may also represent firms’ unwillingness to hire candidates unless they “checks all the boxes,” which would also suggest companies are cautious at hiring due to lack of confidence on future path of economy.
Indeed, the job opening rate currently stands at 3.6%, well past pre-recession high peak of 3.3%, but hire rate remain stubbornly at 3.6%, still below the pre-recession high of 4.0%.  Below is a breakdown of hiring amongst different sectors (with Hires: Total Nonfarm representing the aggregate level), and it illustrates the broader labor market trends of soft manufacturing sector hiring, as well as on-going changes in the healthcare sector amid policy initiatives.
On the other hand, quit rate represents job seeker’s confidence on the labor market – higher quit rate suggests more people are leaving voluntarily after finding another job, a sign of a strong labor market.  This indicator, like hire rate, has also plateaued at 1.9%.  The components are also led by the lower wage “Leisure and Hospitality,” as well as “Accommodation and Food Services” categories (this trend is not new).
Finally, these indicators are monitored by policymakers.  Federal Reserve Chair Yellen highlighted JOLTS in her speech: Labor Market Dynamics and Monetary Policy in August, 2014
Private sector labor market flows provide additional indications of the strength of the labor market. For example, the quits rate has tended to be pro-cyclical, since more workers voluntarily quit their jobs when they are more confident about their ability to find new ones and when firms are competing more actively for new hires. Indeed, the quits rate has picked up with improvements in the labor market over the past year, but it still remains somewhat depressed relative to its level before the recession. A significant increase in job openings over the past year suggests notable improvement in labor market conditions, but the hiring rate has only partially recovered from its decline during the recession. Given the rise in job vacancies, hiring may be poised to pick up, but the failure of hiring to rise with vacancies could also indicate that firms perceive the prospects for economic growth as still insufficient to justify adding to payrolls. Alternatively, subdued hiring could indicate that firms are encountering difficulties in finding qualified job applicants. As is true of the other indicators I have discussed, labor market flows tend to reflect not only cyclical but also structural changes in the economy. Indeed, these flows may provide evidence of reduced labor market dynamism, which could prove quite persistent.13 That said, the balance of evidence leads me to conclude that weak aggregate demand has contributed significantly to the depressed levels of quits and hires during the recession and in the recovery.
Original Quora Article

Next article12 08 2015 | by Victor Xing | Economics

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