The Driver Of Employment "Gains" - Job Separations At Lowest In A Decade

While the fact that over the past few quarters private payrolls have increased has been widely touted by the administration as an indication that the economic recovery has taken root (even if recent NFP numbers have been decidedly below consensus), the fact is that spin of NFP data looks solely at one part of the monthly change in payrolls data: the new payrolls one. Alas, as the 12 Month rolling average chart straight out of JOLTs below demonstrates a just as important, and far less spin-friendly, part of the equation is jobs "separations." The simple math is that the monthly change in payrolls, establishment or household survey aside, is simply equal to new hires less total separations. And it is the latter that is now at decade lows. Said otherwise, payrolls are only up because of the rate of firings is the lowest in the past ten years now that companies have virtually nobody left to fire. This also means that as far as wage negotiations are concerned, workers will have absolutely no leverage. Which can be seen on the second chart. While having picked up modestly in the past several months, the percentage of people voluntarily quitting their job is nearly half of where it has been during the past decade. It also appears to be once again plateauing, now that the jobless recession has double dipped again, and "New Jobs" postings are once again on the wane.

The critical point is the reported BLS NON-FARM PAYROLLS can be driven by one of two things, either A PICKUP IN HIRING OR A SLOWDOWN IN SEPARATIONS.........While the politicians now point to the PRIVATE SECTOR JOB GROWTH, they fail to point out its because of a significant slowdown in SEPARATIONS which is not the same economically as a pickup in NEW HIRING (which is currently at a decade low).

In the 2001, the level of NEW HIRINGS was running as high as 5.8 mm per month. We are currently sitting below 4.0 mm hirings per month and that doesn't account for the required growth in jobs due to demographics.

The bottom line, the "employment gains" have not been due to increased hiring, but due to ever more desperate people no longer daring to leave whatever job security they may have (and willing to take pay cuts as a condition of keeping said jobs).

New Hires and Total Separations:

Rate of people quitting their jobs:

Courtesy of John Poehling