JOLTS Data Flashes Warning Sign: Hiring Is Still a Problem
Weather has pummeled the American labor market this winter. Yet job creation was stronger than expected in February, despite the exceptionally cold and wintery weather experienced by much of the country. The Department of Labor announced last Friday that U.S. employers added 175,000 jobs to payrolls last month — a pace far surpassing both December and January, when payrolls expanded by 84,000 and 129,000 jobs, respectively. While the most recent Employment Situation Report upwardly revised both of the previous two months’ figures, hiring in December and January was still hobbled, and February’s gain represented a significant acceleration in job creation.
“Hiring was delayed during the winter due to bad weather, and I think we’ve started to see some catch-up already in the February figures,” HSBC Securities economist Ryan Wang told Bloomberg on Tuesday. “We’ll continue to see gradual improvement in measures like quit rates and hiring rates.” These government figures are released in the Labor Department’s Jobs Openings and Labor Turnover Survey, or JOLTS.
The Labor Department’s JOLTS report confirmed that employment trends appear to be improving; U.S. employers advertised slightly more jobs in January than in December, which signals that hiring should remain steady in the coming months. Data showed that employers posted 3.97 million job openings in the first month of the year. That gain represents a 1.5 percent increase from December’s 3.91 million and places job openings slightly below November’s nearly six-year high of 4.1 million, the first month that openings topped 4 million since March 2008.
With the labor market showing a modicum of stronger job creation, competition for employment has eased, although 10.2 million Americans remained unemployed in the first month of the year. January’s increase in job openings left an average of 2.57 unemployed Americans for each open position — a decrease from the ratio of 2.64 recorded in December 2013 and 3.33 in January 2013.
In a healthy economy, that ratio is typically 2 to 1. When the recession began in December 2007, the ratio between the unemployment level and job openings was 1.8 and at the end of the recession in June 2009, there were 6.2 unemployed persons for every job opening. That metric has been steadily declining, but as with the unemployment rate, that lower ratio of job seekers to available jobs has dropped partially because some individuals have stopped looking for work.
Openings increased in January in construction, education, health care, and hotels, while they decreased in manufacturing and retail.
Meanwhile, hiring declined 0.9 percent from December’s 4.58 million new payroll additions to 4.54 million, a dip that points to one worrying sign: Job openings have generally bounced back to pre-recession levels, but hiring is still lagging. By comparison, about 5 million people are hired each month in a healthy job market. But the hiring rate did remain unchanged at 3.3 percent. Over the 12 months ending in January, the number of hires changed little for total nonfarm, total private, and government employers.
Stepping back to look at the larger picture, the hole left in the jobs market left by the recession is still gaping; 3.8 million people have been out of work for more than six months and more than 10.5 million in total are without work.
Total firings, which exclude retirements and those who left their job voluntarily, increased to 1.74 million in January, from 1.7 million a month before. Separations — including quits, layoffs and discharges, and other separations — totaled 4.5 million, a figure little changed from December, with the quitting rate remaining fairly constant at 1.7 percent and the layoffs and discharges rate little changed at 1.3 percent.
“Total separations is referred to as turnover. Quits are generally voluntary separations initiated by the employee,” explained the report. “Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. Layoffs and discharges are involuntary separations initiated by the employer. Other separations include separations due to retirement, death, and disability, as well as transfers to other locations of the same firm.”
Large numbers of hires and separations occur every month throughout the business cycle. Net employment change results from the relationship between hires and separations. When the number of hires exceeds the number of separations, employment rises, even if the hiring was steady or decreasing. Over the twelve months ending in January 2014, hires totaled 54.3 million and separations totaled 52.1 million, producing a net employment gain of 2.2 million. That net employment gain does look weak when compared to the total number of unemployed Americans.
Still, the number of available of jobs was strong in January, even though the Labor Department’s Employment Situation Report for the month revealed that job growth had slackened in the first month of the a year, a downturn economists have partly attributed to the unusually cold and stormy weather that plagued much of the country. The jobs report showed U.S. employers added only 129,000 jobs to payrolls in January — the second straight month of weaker-than-expected employment gains. With 129,000 jobs added to payrolls, job growth was not nearly as low as in December, but it was still significantly weak.
After the report was released, the question for economists was whether to renew concerns for the economy’s ability to create jobs and whether the Federal Reserve would respond to the data by re-evaluating its decision to taper the central bank’s monetary stimulus program.
At the last meeting of the Federal Open Market Committee, which took place between the 28 and 29 of January, policymakers found labor market indicators to appear “consistent with a gradual ongoing improvement in labor market conditions,” as the minutes state. “Among other indicators of labor market conditions, the rate of job openings edged up in recent months.” The next meeting will take place later this month.
The JOLTS report is one of Federal Reserve Chair Janet Yellen’s favorite economic releases. “In addition, I am likely to supplement the data on employment and unemployment with measures of gross job flows, such as job loss and hiring, which describe the underlying dynamics of the labor market,” she said at a March 2013 National Association for Business Economics policy conference. “For instance, layoffs and discharges as a share of total employment have already returned to their pre-recession level, while the hiring rate remains depressed. Therefore, going forward, I would look for an increase in the rate of hiring.”
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