While many will be quick to ignore the May JOLTS report, due to its one-month delay behind the payrolls data and coinciding with an abysmal month when the US added only 11K seasonally-adjusted jobs, it does reveal several troubling points. First and foremost is that while Wall Street - which was already aware of the June payrolls number - was expecting the number of job openings to decline modestly from 5.788MM, the drop was far steeper, albeit from an upward revised 5.845MM, sliding to 5.5MM, the lowest number of job openings since February, and the biggest monthly drop since October.
It wasn't just job opening which disappointed in May: so did the far more important, in our opinion, number of hires. In May, the BLS reported that the number of total hires was only 5.036MM, the third month in a row of declines, and the lowest print since November 2014 as suddenly employers clamped down on new (seasonally-adjusted) hiring.
The Hires series is important because historically it has been a good concurrent indicator of the trend in cumulative annual total payroll changes, although in this cycle something has broken, as the char below shows. That something is the Beveridge curve, shown below. However, no matter the breach in correlation, the recent slide in hiring is hardly a favorable outcome for the US jobs market.
Naturally, the flipside to reduced hiring at a time when overall payrolls are still rising, is a reduction in separations, and indeed in May, the number of total separations dropped from 5.015MM to 4.952MM, which meant that the Net Turnover between additions and separations was +84K in May, well above the total payrolls increase reported in the month of May of only 11K.
And then there is the "quits" series, or as Nick Colas from Convergex puts it, the "take this job and shove it" indicator. This too showed a troubling decline, and at just 2.895MM in people quitting in May, this was the lowest monthly print since January, suggesting that workers had less confidence in their ability to find a job, and thus prompted them to quit in smaller numbers.
Finally we conclude with our favorite chart which encapsulates all the trends revealed in the JOLTS report, namely the Beveridge Curve, which sadly continues to be broken. This is the BLS' explanation:
- 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.
- I6, the unemployment rate was 4.7 percent and the job openings rate was 3.7 percent. This job openings rate corresponds to a higher unemployment rate than it did before the most recent recession.