By Jessica Rabe

When US wage growth finally exceeded 3% y/y back in October for the first time since the Great Recession, some questioned if it was sustainable. We argued yes and that it could ramp up from there. After December’s 3.2% y/y print, that came true. At least for now…

What gave us such conviction? Our monthly close review of the Job Openings and Labor Turnover Survey (JOLTS), which is one month delayed but gives more details lying beneath the headline numbers in the Friday Jobs Report. Here’s the metrics we’ve been monitoring in JOLTS to measure worker confidence and wage growth (November 2018 is the latest available data):

  • Job openings versus unemployed workers: Job openings continue to exceed the number of people looking for work, which has gone on for 9 consecutive months as of November. Prior to last year, that simply never happened as there were always more people looking for work than positions available since the series started in December 2000. 

    The latest numbers: 6.89 million job openings compared to 6.02 million unemployed workers in November 2018. 

  • Job openings vs hires: Job openings also continue to exceed the number of hires, a new phenomenon that first happened in August 2014. Hires have fallen short of job openings during 87% of months since then. Job openings have also surpassed hires for 22 months straight. 

    The latest numbers: 6.89 million job openings versus 5.71 million hires. 

  • Job competition: Those searching for jobs in November faced 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 1.81 in November compared to the all-time trough of 1.65 in August 2018.

    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 0.87 unemployed individuals for every available job in November versus the all-time low of 0.85 in August 2018.

With more employers looking for workers than those searching for jobs or hiring and minimal job competition, workers are positioned well in terms of their bargaining power. In this context, strengthening wage growth makes sense. 

That said, is this a sign of a market top? Here’s where we are in the cycle according to the latest data in JOLTS (again as of November 2018):

  • Quits to total separations: Our “Take This Job and Shove It” indicator – or quits to total separations ratio – registered at 61.9% in November compared to the record high of 64.5% in July 2018. Given that it’s mostly fallen each month since, we would not be surprised if that were the peak this cycle. The number of quits also fell for three straight months to 3.41 million in November, down 112k from October. 

    Quits as a percentage of the labor force has also started to roll over the past three months from its post-recession high of 2.3% of the workforce in August 2018. At 2.1% as of this past November, it still bests the peak of the last US economic cycle when it was around 2%. We’ll look to see if it drops below that 2% threshold as a warning sign of eroding worker confidence in the coming months. 

  • Job openings: There were 6.89 million available positions at the end of November, down 243k from the prior month. Job openings as a percentage of the labor force has retreated the last few months from its record high of 4.5% this past August. Currently at 4.2%, it still exceeds the highs of the last two cycles. That said, we’ll monitor if there’s further weakening ahead as it could signal declining hiring interest. 
  • Hires: 5.71 million Americans started new jobs in November, down 218k from October. Hires as a percentage of the labor force remains stagnant at around 3.5%, similar to the last economic cycle around 2004 to early 2007. The latest print for November was 3.5% compared to the record high of 4% in January 2001.

Bottom line, while the labor market remains robust, the trend is not our friend as we see it starting to slow. That’s not to say the US labor market can’t keep growing modestly along with wage growth going forward, but we still think it likely peaked over the summer of 2018.



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US Labor Market Is Slowing