Market Insights: U.S. labor market finishes the year with a JOLT

U.S. labor market finishes the year with a JOLT

Early in January, the U.S. December payroll report was released by the U.S. Labor Department and it was definitely one of the strongest we've seen this business cycle.  This week, the details under the hood proved to be just as strong, with the Labor Department's release of the monthly Job Opening & Labor Turnover Surveys (JOLT) report for December.  The JOLT report was highlighted by some very strong results:

 

• The number of people voluntarily leaving their job (the "Quits") jumped 196,000 in December and 328,000 for the last quarter which is an all-time record, resulting in the level rising to nearly 3.1 million which is the highest level in nine years.  
• Also a new post-recession high, new hires rose for the third month in a row to hit a level of 5.4 million workers.  
• For the second highest level on record (dating back to 2000 and not adjusted for population growth), job openings surged to 5.6 million. 
• Layoffs fell by 79,000 in December leading to a cumulative decline of 179,000 over the last quarter; a level that is historically low.

 

While the number of new hires is an obvious plus, the voluntary quit level is an even more interesting behavioral positive.  If a significant number of workers feel strongly that they can obtain a better job by quitting their existing job, then that is strong evidence of a healthy labor market.

Another interesting data point out to come of this report is that the number of people trying to obtain each job is down to a level of 1.4. In the past, this has been a level that is indicative of a fully employed economy and one for which wages are likely to take off.  We are starting to see evidence of this lift off; however, wages growth still remains well below rates seen before the last recession.  A relatively higher quit rate does tend to lead wage inflation, so it's possible that we will continue to see wage growth rise.  

Source:  NBF Economics and Strategy, Bearnobull.com

Lastly, we wanted to highlight the manufacturing sector as it has been the one sector in recession.  There were 86,000 job openings in December, which is the second highest increase on record; this is a great sign.

All in, the results of this report were very constructive (as have been recent U.S. employment situation reports) and indicate a strong finish to the year for the U.S. labor market; completely at odds with the equity markets and the high yield bond spread which are pricing in a high probability of a recession.  The economic fundamentals are still pointing to low odds of a recession.  It is not the first time we have seen this diversion, and therefore, caution is warranted, though there also remains much cause for optimism.