By Jessica Rabe

With US wage growth finally above 3% y/y in October for the first time since the Great Recession, is this pace sustainable? As much as the Friday Jobs Reports gets the headlines, we always look forward to the Job Openings and Labor Turnover Survey (JOLTS) out a few days later. JOLTS data may be one month delayed, but it makes up in useful detail what it lacks in timeliness. 

Over the past few months of JOLTS reports we’ve been highlighting to you how American workers’ wage bargaining power has continued to strengthen, and the latest numbers out today confirm this trend. Here’s why:

  • Job Openings vs. Unemployed Workers: There are have been more job openings than there are people looking for work for the past seven straight months. This is an unusual phenomenon, something that simply never happened until March 2018 since the start of the data series in December 2000. The gap is also not small, with a million more job openings than unemployed workers the last two consecutive months. 

    The latest available JOLTS numbers: 7.009 million job openings versus 5.964 unemployed workers in September. 

  • Job Openings vs. Hires: Even though job openings fell slightly, down 3.9% m/m to 7.009 million in September, looking at this figure as a percentage of the labor force shows near record levels of hiring interest. Not only are job openings still up 12.5% y/y, but job openings as a percentage of the labor force are at 4.33% compared to the record high of 4.5% in August 2018. To put this in perspective, the peaks in the prior two cycles were 3.7% in January 2001 and 3.2% in April 2007. 

    Despite the near record level of employers wanting to add more employees to their payrolls, actual hiring as a percentage of the labor force falls below the peak. Hiring/labor force was at 3.6% in September compared to the all-time high of 4.0% in January 2001. It has been hovering around the 3.5% level for the past few months, or where it was in 2005-2007. 

  • Quits to Total Separations: Our “Take This Job and Shove It” indicator - or quits to total separations ratio – shows worker confidence remains at near record levels. This ratio registered 63.5% in September compared to the peak of 64.5% this past July. This reflects a strong level of worker mobility and a particularly robust labor market since workers typically secure another job before quitting their current position. 

    Quits as a percentage of the labor force also remains near record levels as well at 2.2%, and exceeds the peak of the prior US economic cycle (when it hovered around the 2% threshold). It’s still below the record high of 2.4% in January 2001, but this gives it room to run even further. 

  • Record low job competition: Those searching for jobs in September encountered record low levels of competition since the BLS started tracking the data in December 2000. The ratio of unemployed people for every open job—including those who are employed part-time because they cannot get full-time work and those who are marginally attached to the labor force—was just 1.74 in September compared to the all-time trough of 1.65 in the prior month.

    Using the headline unemployment figure, which does not include discouraged workers (those who gave up hopes of finding a job and stopped looking), there were only 0.85 unemployed individuals for every available job in September, an all-time low.

Bottom line, worker confidence remains very high and they face record low levels of competition when trying to find a new job. If anything, there’s more job openings than Americans looking for them. With this backdrop we expect wages to continue gaining steam. Although employers still struggle finding the right workers, it further strengthens the bargaining power of those who are qualified. 

These are all important trends to watch as continued growth in wages above 3% will encourage the Federal Reserve to stay on their rate hike path. Although Fed Funds Futures recently started pulling back expectations for future meetings, we think this latest data enables the Fed to hike more aggressively than investors may anticipate. 


JOLTing Wage Growth