The sharp fall in job openings over the past year appears to be a lagged response to the earlier slowdown in hiring intentions rather than a sign that labour market conditions are about to deteriorate. We still expect solid jobs growth to help drive a gradual recovery in consumption growth this year.
- The sharp fall in job openings over the past year appears to be a lagged response to the earlier slowdown in hiring intentions rather than a sign that labour market conditions are about to deteriorate. We still expect solid jobs growth to help drive a gradual recovery in consumption growth this year.
- While the monthly JOLTS survey usually receives little attention, the recent plunge in the job openings rate to a two-year low of 4.0% in December, from 4.8% at the start of 2019, has attracted some concern. The rate is still far higher than previous cyclical peaks, reflecting the structural decline in job advertising costs, but it is unusual for job openings to see sustained falls outside of recessions and the 14% y/y contraction in December was the sharpest since 2009. (See Chart 1.) The weakness has been concentrated in retail, construction and manufacturing, but all major sectors have seen a fall in vacancies over the past year.
- That said, there are a couple of reasons to treat the JOLTS data with caution. First, while the Conference Board’s alternative Help Wanted Online index also suggests that job postings have fallen over the past year, the pace of decline has been far more gradual. (See Chart 2.) Second, unlike during previous downturns, the recent drop in job openings has not been accompanied by a decline in the hiring rate or by a rise in layoffs, both of which have held steady over the past year. The low level of initial jobless claims suggests that layoffs have remained unusually low at the start of 2020 too. Meanwhile, the continued stability of the voluntary quits rate suggests that workers remain confident in their ability to find new jobs.
- In any case, there is no evidence that it will presage a broader downturn in labour market conditions. While they have never had much of a relationship, the weakness of job openings is at odds with the strong rebound in payroll employment growth over the past six months. (See Chart 3.)
- Instead, the fall in job openings may be a delayed reaction to the sharp decline in employment intentions visible in some of the surveys in the second half of last year, but which was not reflected in the hard data. (See Chart 4.) After briefly hitting a 10-year low in October, possibly driven by the rapid escalation of trade tensions with China, the employment component of the Markit Composite PMI has since staged a V-shaped recovery. This suggests that job openings will also start to stabilise over the coming months.
Chart 1: JOLTS Job Openings
Chart 2: Job Openings (%y/y)
Chart 3: Job Openings & Payroll Employment
Chart 4: Job Openings & Markit Employment PMI
Sources: Refinitiv, Markit, Conference Board
Andrew Hunter, Senior US Economist, +44 20 7808 4071, email@example.com