September 2012 JOLTS May Be Warning of Slowing Job Gains Ahead

Written by Steven Hansen

The BLS Job Openings and Labor Turnover Survey (JOLTS) has been a good predictor of future jobs growth:

  • the number of PRIVATE jobs openings – which is the most predictive of the JOLTS elements – was down 2.8% from last month, and only 1.7% higher than one year ago;
  • the growth trend line in this index has dropped below the existing trend channel.  One month is not a trend, but this index may be warning of poor growth ahead.
  • hires and separations also declined in lockstep nullifying each other.

The relevance of JOLTS to future employment is obvious from the graphic below which shows JOLTS Job Openings leading or coincident to private non-farm employment.

Private Jobs Openings from JOLTS (blue line, left axis) compared to BLS Non-farm Private (red line, right axis)

Private Jobs Openings (blue line in the above graph) have dropped below the upward channel that began coincident with the end of the recession.

Although the JOLTS data is one month older than the current jobs data, JOLTS job opening trends are a valid forward employment indicator. The short term trend is arguable from this graph, but could be be indicating a turning point.

However, the trend is much clearer using non-seasonally adjusted non-farm private BLS data to look at the trend lines – and this means JOLTS is continuing to predict jobs growth in the 2% year-over-year range – however this trend appears to have a slight downward bias.

Year-over-Year Change – Jobs Openings from JOLTS (blue line, left axis) compared to Unadjusted BLS Non-farm Private (red line, right axis)

The JOLTS Private hires rate and the separations rate both declined 0.2 points in this report to 3.5% and 3.4% respectively. The separation rate is the percent of workforce which quit or was laid off. Likewise, the hire rate is the percent of the workforce hired. Remember these are seasonally adjusted numbers – and this chart below would logically suggest there were no jobs gains (as separations equaled hires).

Hires (blue line) and Separation Rates (red line) – Non-Farm Private

However, please note that Econintersect has not been able use the hire rate or the separation rate (or a combination thereof) to help in understanding future jobs growth. JOLTS is issued a month later than the jobs data – and correlates against one month old data.

Hires less Separation Rate (blue line, left axis) compared to Non-Farm Private BLS Non-farm Private (red line, right axis)

In conclusion, one month is not a trend but this is  not a good report.

Caveats on the Use of JOLTS

This data series historically is very noisy which likely is a result of data gathering issues and/or seasonal adjustments. Therefore this series must be trended to provide any understanding of the dynamics. One of two months of good or bad data are not predictive.

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Non-Farm Private Employment Growth – Septemberss Comparing Unadjusted and Adjusted Jobs Growth

You can see from the below graph, that jobs are only marginally softer this month.

Change in the Rate of Growth Annualized of Private Non-Farm Jobs (red line, right axis) and Year-over-Year Growth (blue bars, left axis)

/images/z bls2.PNG

From the Conference Board:

The Conference Board Employment Trends Index™ (ETI) decreased again in September, following a downward revision in August. The index now stands at 107.86, down from the revised figure of 108.23 in August. The September figure is 5.4 percent higher than a year ago.

“In September, the Employment Trends Index declined for the third time in four months, suggesting that employment growth will weaken further in the fourth quarter,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board. “The U.S. economy entered a soft patch in the spring and the result has been lackluster job growth, which is likely to continue through the first half of 2013.”

September’s decline in the ETI was driven by negative contributions from five of the eight components. The weakening indicators – beginning with the largest negative contributor – were Ratio of Involuntarily Part-time to All Part-time Workers, Percentage of Firms With Positions Not Able to Fill Right Now, Initial Claims for Unemployment Insurance, Number of Temporary Employees and Job Openings.

To add context to this index, the following graph compares BLS non-farm payrolls and the Econintersect Employment Index to the ETI. Econintersect uses non-labor and mostly non-monetary economic pulse points in constructing its index, while The Conference Board uses mostly elements of employment data.

Comparing BLS Non-Farm Employment YoY Improvement (blue line, left axis) with Econintersect Employment Index (red line, left axis) and The Conference Board ETI (yellow line, right axis)


The graph above offsets the Conference Board ETI by 3 months. My take is that neither Econintersect or The Conference Board ETI is mimicking the actual BLS jobs data. The Conference Board tries to predict turning points (which it appears to be good at) – but is unable to predict the intensity of the upward or downward movements. Econintersect attempts to predict intensity of movement (which it appears it is much better at than the ETI) – and is predicting a continuing weak labor market (which the labor market until recently has been stronger than Econintersect‘s index would have predicted).

One more kick at the employment situation using ADP vs BLS data.

Total Private Non-Farm Employment – ADP (blue line) vs BLS (red line)

You will note that BLS’s employment has been stronger then the ADP’s number since the beginning of 2011. I tend to trust the ADP number more in real time due the size of backward revision to the BLS numbers.

Current Historical Unadjusted Private Non-Farm Jobs Growth Between August and September (Table B-1, data in thousands)

/images/bls non-adjusted change.PNG

The bottom line is that the jobs situation seems to be in a softer period through the end of the year.

Caveats on the Employment Trends Index

According to the Conference Board:

The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly.

The eight labor-market indicators aggregated into the Employment Trends Index include:

  • Percentage of Respondents Who Say They Find “Jobs Hard to Get” (The Conference Board Consumer Confidence Survey
  • Initial Claims for Unemployment Insurance (U.S. Department of Labor)
  • Percentage of Firms With Positions Not Able to Fill Right Now (© National Federation of Independent Business Research Foundation)
  • Number of Employees Hired by the Temporary-Help Industry (U.S. Bureau of Labor Statistics)
  • Part-Time Workers for Economic Reasons (BLS)
  • Job Openings (BLS)
  • Industrial Production (Federal Reserve Board)
  • Real Manufacturing and Trade Sales (U.S. Bureau of Economic Analysis)

Unfortunately many of these indices are not accurate in real time being subject to at times significant backward revision.

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