Job Openings Plummet (Why That’s Not Scary)

Redbook Sales Growth Falls: Consumers Are Financially Confident

In the week of February 8th, Redbook same store sales growth fell from 5.7% to 4.8%. That’s not a disaster, but it’s less growth than you’d expect to see if the consumer was on fire like the confidence surveys suggest. Recent Gallup polls were remarkable as the consumer set records in terms financial well-being.

Specifically, the percentage of Americans who stated they were better off financially than they were last year rose to 59% which was the highest since the survey was started in 1976. Similarly, the percentage who said they were worse off than last year fell to 20% which was the lowest since at least 1976. Optimism was high about future finances as well. 74% stated they expected to be better off financially in the next year which was the highest since at least 1978. Percentage who expected to be worse off fell to 12% which was 3 points above the record low.  

This survey is great for President Trump and makes Bernie’s odds of winning questionable. You wouldn’t expect to see a political revolution with the economy providing an improvement to the finances of the most Americans ever. In the Quinnipiac poll, Bernie is ahead of Trump by 8 points. But the betting market is ignoring this as Trump has a 55% chance of winning re-election. 

Bernie believes if people who haven’t voted before, particularly young people, get to the polls, he will win. However, this Gallup poll is based on all Americans, not past voters. I don’t see where there is a massive cove of support for changing the economic system when so many are doing well right now.

Job Openings Plummet

Hottest topic on financial Twitter on Tuesday was the decline in job openings in the December JOLTS report. Job openings plummeted again as they fell to 6.423 million which was down from 6.787 million. They missed estimates for 6.775 million and the low end of the estimate range which was 6.7 million. Since hiring matters more than openings, it is now being heeded as openings flush lower. Openings were the lowest since December 2017.

As you can see from the chart below, openings growth overshot to the upside in 2018 and is now overshooting to the downside. Growth is -14.1% which is the lowest since the beginning of this expansion. Sequential 2 year growth stack was a disaster, but the comp was still near the peak, so we can partially forgive this weak growth. The comp got 3.1% easier and growth fell 3.1%. Good news is the 2 year growth stack was still positive as it was 6.5%.

Openings don’t mean anything without hiring. That became apparent this cycle when openings exploded way above hiring. Now openings are coming back in line with hiring while the unemployment rate stays low. Some are saying a greater percentage of openings are leading to jobs because of a greater willingness to hire and train workers as the labor market gets more mature. 

Others say this represents business uncertainty. Ultimately, if a flyer for a job that never had a chance of being filled gets taken away, I don’t see how it matters much. What’s the point of counting a job offer that wasn’t serious? It’s not up to me to decide whether it’s serious. Let's judge based on whether it was filled.

Hiring & Quits Are Fine

Hiring and quits were solid. There’s nothing that indicates the labor market is getting much worse like openings state. It’s not vitally important to figure out why openings fell if it’s not indicative of changes to the overall labor market. Specifically, hires rose from 5.827 million to 5.907 million which is slightly below the record high of 5.991 million in April 2019. Yearly growth rose from 0.1% to 3.3%.

Annual average of yearly growth in 2019 was 1.7% which was 0.2% below the cycle low of 1.9%. It’s clear the labor market is still strong, but growth is very slow because slack is low. There aren’t many people who are looking for a job who can’t get one. Many of the new workers in the past few quarters have been people who gave up looking for a job and are coming off the sidelines.

Construction job creation was strong. Number of hires rose from 439,000 to 484,000 which is just 4,000 off the cycle high. Quarterly  average of yearly growth was 22.2% which is the highest since Q2 2011. It’s clear the residential housing market is strong and was bolstered by warm weather. 

Number of hires in accommodation and food services rose to 966,000 from 897,000 which put it 29,000 off its cycle high. Overall quits rate in the whole labor market tells us there have been almost no changes recently as it has stayed at 2.3% in the past 4 months. That’s just 0.1% off the cycle high.

We Will Never See Full Employment?

Powell gave a speech on Tuesday in which he stated, "We're never going to say we've accomplished that goal." This response was to the question if the Fed can achieve full employment. That’s interesting because the Fed has been saying it’s close to full employment for a few years now. It always overestimated the long run unemployment rate. 

Now when the labor market is actually very close to full, the Fed is saying it will never be full. This is like if someone was bearish on stocks for the past years and now that valuations are a bit stretched is telling you to buy everything because stocks will never fall.

I’m not here to criticize the Fed. The goal is to make money. A takeaway is if the Fed never thinks the economy will get to full employment, it has no problem keeping rates low if the economy isn’t generating excess inflation. Fed has been trying to get inflation higher for the past few quarters. There’s no chance it will hike rates at the next few meetings.  

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1 Comment

  • Philip Griffith

    February 13, 2020

    What is so nice about reading an article like this - the author articulates the "why" to his premise. Keep it up! Good stuff.