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Weakness in the JOLTS data could foreshadow weakness in payrolls and the end of consumer led economic growth.

 

In several prior posts, we have highlighted that the consumer has been the source of near-term strength in the U.S. economy, but we believe the long-term potential of the consumer is generally tied to a rebound in the corporate sector.  If the corporate sector remains weak, there is a potential risk that layoffs may increase, and the strength in the consumer sector will be negatively impacted by the loss of income.  One of the ways we measure trends in the labor market is through the monthly Job Openings and Labor Turnover Survey (JOLTS) produced by the Bureau of Labor Statistics (BLS).  The non-farm payroll report is historically a more popular and widely followed report shown as a net number, meaning it is the difference between hires and separations.  The JOLTS report provides insight into the number of job openings, hires, separations, and resignations each month.  In the JOLTS data, we found some evidence that the number of job openings has been at a steady decline, since peaking in November of 2018.  Some of this may be driven by a lack of qualified applicants, but the impact is the same showing that many companies must operate at a lower capacity than desired.  In the hires data, we observed that this data set is more volatile yet has been sideways throughout most of 2019, while peaking in April.  In the separations data, we observed that the absolute amount of separations has been increasing in 2019.  September’s number was 5.808 million and the peak in July was 5.810 million.  While the pace of growth in separations has slowed recently, our preliminary concern for the future is that openings will continue to decline as hires do not pick back up, and separations will continue to increase while net payroll growth turns negative.  Once this occurs, we believe the unemployment rate will likely start to increase, and the consumer will start to lose the ability to be the driver of future growth. 

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

Source: The Bureau of Labor Statistics (BLS).

 

Rank Dawson, CFA
Vice President, Investment Strategy

Boyd Watterson Asset Management, LLC

 

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.