Employment & Productivity

All about Jobs, 3: Phantom Job Openings: Evidence from HWOL

We suspect that these are phantom job openings, a kind of tire-kicker index in which employers are hoping to land a really big fish, but not using very good bait.

Looking at the Conference Board’s help wanted online (HWOL) series underscores the possibility that employers may not be that serious about these openings.

Both versions of the HWOL series, new, unduplicated listings and total listings—have been trending downward for three years, while the openings rate has been working its way higher. If employers want to fill these jobs, why aren’t they advertising them? We first asked this question in October 2016 and last asked it in May, and the trends have only di-verged further with each asking.

Anything else? Yes! All about Jobs, 4: Should the quit rate be higher?

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All about Jobs, 4: Should the Quit Rate Be Higher?

As this graph shows, the private sector quit rate is close to an all-time high for the series. Quits are a sign of worker confidence and can forecast wage pressures ahead. But as high as the quit rate looks, should it maybe be higher?

To answer that question, it’d be nice to have a quit series that goes back before 2001. We don’t have an official one of those, but we can construct one by using the share of voluntary leavers among the unemployed and those unemployed five weeks or less. For the period since 2001, the synthetic quit rate has an r2 of 0.93 relative to the actual rate.

Of course, things may have changed over time, but r2’s like that are rare in the world of economics, so we feel pretty confident that this is a good estimate of the pre-2001 history.

And if we take that long-term synthetic series and compare it to the unemployment rate, we get the results graphed above. Instead of the July unemployment rate of 3.9%, the predicted rate should be considerably higher, 5.3%. In other words, workers are acting as if the jobless rate is almost a point-and-a-half higher than it is. Note that the pattern was similar around previous unemployment troughs in 2000 and 2007.

But before 2000 the reverse was true, as the predicted rate was higher than the actual. We suspect what’s at work is a phenomenon that Alan Greenspan used to talk about in the late 1990s: the fear of corporate restructuring and job skill obsolescence that took hold in the late 1980s/early 1990s has changed worker psychology. It takes a lower unemployment rate to give rise to enough confidence to quit than it did several decades ago.

And finally, All about Jobs, 5: What about job leavers and wages?

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All about Jobs, 5: What about Job Leavers and Wages?

Worker confidence can be measured by the quit rate, and it can also be measured by share of job leavers among the unemployed. (This doesn’t rely on a synthetic quit rate series, although we don’t really think that’s an issue in any case.)

Following up on a suggestion from David Rosenberg of Gluskin Sheff, we looked at the relationship between the leavers’ share and the annual growth in average hourly earnings six months later. (We used production workers because the all-worker series only begins in 2007. Where they overlap, they are tightly correlated.) As this graph shows:

wage growth is trending higher, but far less than predicted. Instead of August’s 2.8% annual gain in AHE, the leavers’ regression says it “should” be 4.2%. (By next February, it “should” be up to 5.2%.)

The gap is further evidence that while tighter labor markets are leading to wage pressures, structural changes in the labor market have probably reduced the intensity of those pressures. It appears Alan Greenspan had this one right.

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Claims claims: Do Not Be Deceived

Much has been made of the low level of first-time unemployment claims. They are low, no doubt about it—0.16% of employment, a hair above March’s record low of 0.15% and well below the previous record of 0.20% set in March 2000. (You can say similar things about continuing claims.) But, as we’ve noted in the past, the record comes with an asterisk.

That asterisk is the declining share of the unemployed who are eligible for benefits. When we last visited this terrain, we noted that the insured unemployment rate was close to 70% of the official rate in the early 1970s; it’s less than half that, around 32%, today. Some readers countered that this could be explained by the rising share of the long-term unemployed in the total. True enough; now, those unemployed 27 weeks or longer account for 26% of the total, which would have been worse than a depth-of-recession neighborhood in the 1970s and 1980s.

But the long-termers can’t account for this: initial claims are now around 62% of the flows into unemployment, more than 20 points below the 1990–2007 average of 85%, and had never been below 74% before 2013.

A record, but for a weak reason.

Our Take on January Jobs

This was basically a solid report, with job growth above recent averages. (Part of that strength was good business practice, and part of it technical, more below.) Wage growth strengthened, but hours were surprisingly weak.

Employers added 200,000 jobs in January, 196,000 of them in the private sector. Both are about 20,000 above the average of the previous six months. Goods production extended its strength, with mining and logging up 6,000 (just above its average over the last year); construction, 36,000 (firmly above average); and manufacturing, 15,000 (slightly below average, with the plus signs concentrated in durables). Private services added 139,000, just above average, with wholesale trade up 10,000 (well above average); retail, 15,000 (quite a contrast with its average of -3,000, with most of the gain coming from clothing stores); transportation and warehousing, 11,000 (just below average); finance, 9,000 (also just below average); professional and business services, 23,000 (more than a third below average, with accounting/bookkeeping in the red for the second consecutive month, and temp firms unusually weak); education and health, 38,000 (just below average, though health care alone was almost a fifth below average); leisure and hospitality, 35,000 (above average); and other services, 6,000 (a third below average). In the red: information, off 6,000, twice its average decline. Government added 4,000, most of it federal, as losses in state gov were offset by gains in local.

As we mentioned in yesterday’s report, seasonal factors anticipated heavy lay-offs in construction and retail work. Surely construction businesses are holding onto their workers in the current environment; those are real jobs, if somewhat enhanced by the factor. The strength in retail, though, was probably driven by weak hiring in December, which caused the factor to over-adjust for anticipated January layoffs.

For the year ending in January, total employment was up 1.5%, and private employment, 1.7%. Both are down 0.2 point from where they were in January 2017 – and both those 2017 numbers were also down 0.2 from January 2016. And the 2016 numbers were down 0.3 (total) and 0.4 (private) from January 2015. Claims that employment growth over the last year have been extraordinary are overdone; the cycle’s peak employment momentum was February 2015’s 2.3%, almost three years ago.

Diffusion indexes were surprisingly weak, with all four intervals down. We wouldn’t make much of this now, but it bears watching.

The average workweek fell 0.2 to 34.3 hours. Declines of 0.2 in the hours series are rare: there have only been seven declines of 0.2 or more (six -0.2s, one -0.3) in since the all-worker series began in March 2006. We’ve seen several instances of 34.3-hour workweeks over the last couple of years, but it is the low end of the range since hours climbed out of the recessionary basement in late 2011. Both manufacturing and services were down.

Average hourly earnings rose 0.3%, taking the three-month moving average up from 0.2% to 0.3%. (We confirmed with the BLS that they have corrected a timing issue affecting wages, so no more fun with that flaw.) The annual gain is now 2.9%, and has risen 0.2pps in each of the last three months. In 2016 the gain for all workers was 2.5%, and in 2017 it was 2.4%. Oddly, you have to go back to June 2009 to see wage growth of 2.9%.

Production and non-supervisory workers’ wages were weaker at 2.4% over the year. We reverse engineered supervisory workers’ wage gains using their share of the workforce, graphed above. You’re see wages for supervisory workers are currently growing at 3.9%. A year ago wages of production workers were growing at 2.3%, while wages for supervisory workers were growing at 2.6%.

Because of the sharp decline in the workweek, aggregate payrolls – hours times earnings times employment – were off 0.1%, the first decline since March 2017.

The benchmark revision announced by the BLS last fall was put in place, once again a non-event. Total employment as of March 2017 was lifted 0.1%, which is below the 0.2% absolute average of the last 10 years. That average has fallen, by the way, which means the monthly estimates have been more accurate in recent years. Over the last five years the revisions were absolute 0.1%. with one too small to count.

This month brought the annual changes to the population controls for the household survey, which makes most month-to-month comparisons non-kosher. The BLS did provide information on several measures adjusted for the changes in the population controls, and those developments were not lapel-grabbing: the participation rate, the employment/population ratio, and the unemployment rate were all unchanged before the changes in the controls, as they were after. And total employment, up 409,000 as published, would have been up just 91,000 were it not for changes to the population controls. The changes increased the size of the noninstitutional population by 488,000, the labor force by 333,000, and employment by 318,000 – not large numbers in the long view, but large enough to muddle comparisons with December.

The unemployment rate has been 4.1% for four consecutive months now. While some analysts are calling for a move towards 3.5%, this stability is starting to look late-cycle-ish.

Weather effects were strictly average for a January.

Because of the changes to the population controls, there is nothing that can be reliably said about the duration of unemployment or the job flows numbers.

The above-consensus rise in employment and strengthening wage growth will bolster the case for further rate rises. It will be interesting to see how dependent on low rates the financial markets and corporate cash flows have become; preliminary signs from stocks suggest there will be some adjustments coming in 2018.

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