JOLTS Underline Strong Demand for Labor

November’s job openings hit 10.5 million, roughly unchanged from an upwardly revised October level. That is 50% above the level of job openings we saw in February 2020, when the previous expansion hit its peak. The ratio of job openings to job seekers stayed at 1.7, the same as we saw in October. This is well above the 1.2 ratio we saw in February 2020 and the 1:1 ratio the Fed is seeking to better balance labor demand with labor supply. 

The industry mixes on job openings are shifting. A turnaround in job postings in the professional and business services sector, a rise in postings in the manufacturing sector and a rise in job openings at the state and local levels offset a slowdown in job openings in finance, education and health services; leisure and hospitality continued to moderate. Job openings and hiring in construction and job postings by the federal government suffered the largest losses.  

The gains in manufacturing are a bit of a surprise given the dip in ISM and PMI indices for manufacturing activity. A rise in the ranks of those out sick and unable to work during the month, coupled with a rise in retirements, likely contributed to staffing shortages.  

Job openings in information, which includes the tech sector, fell slightly but not as much as one would expect given announced hiring freezes and layoffs. Workers displaced in tech were easily absorbed. The quit rate surged as tech workers sought employment elsewhere. Quit rates in the health care sector were also elevated. This likely reflects burnout and acute staffing shortages. Hospitals have been slammed in recent months as a trifecta of RSV, flu and COVID infections filled hospital beds.  

It is worth noting that the professional and business services sector doubled the level of the other separation categories month-over-month. This hints that more people are leaving the industry due to retirement. With the quits rate remaining elevated, competing for talent in this industry will continue for some time.

As the payroll company ADP data showed, job changers generally enjoyed better pay than job stayers. The quits rate has come off the peak we saw in winter of 2021 but remains extremely elevated. This could place a floor on wage gains and up the pressure on the Federal Reserve to raise rates. The Fed’s base line includes an additional 0.75% increase in rates in 2023 to a target range of 5%-5.25%; seven participants at the December Fed meeting had an even higher terminal rate. All believed that the unemployment rate must rise by more than a percent from the 3.5% low we in September 2022 for labor markets to ease enough to bring inflation back to the Fed’s 2% target.

The Bottom Line:

High job openings, hires and quits continue to demonstrate the strength in the labor market.  Workers who were laid off have easily found new positions. To bring the demand and supply of labor into a healthy balance, the Fed will keep hiking interest rates, at the expense of a rise in unemployment, to try to bring down inflation.