JOLTS, Labor Market Conditions index consistent with late 2017 recession
by New Deal deomocrat
JOLTS, Labor Market Conditions index consistent with late 2017 recession
I continue to be unimpressed with the Job Openings and Labor Turnover Survey (JOLTS), as showing post-mid cycle deceleration for over a year. I have found what I hope is a better way to present my argument, so that you can see why the report is less than heartening.
First, here is a comparison of job openings (blue), hires (red), and quits (green, right scale). Because there is only one compete past business cycle for comparison, lots of caution is required. But in that cycle, hires and quits peaked first, while openings continued to rise before turning down in the months just prior to the onset of the Great Recession:
Through today’s report for August, 2016 looks very much like 2006, or even early 2007.
To better show you my concern, let’s look at this same data as expressed in YoY% changes:
Although there’s lots of noise in the squiggles, the pattern of maximum growth at mid cycle gradually declining under zero prior to the onset of the 2008 recession is evident. Here is a close-up of the years 2005-08 to show you the deceleration of quits and hires from their peaks in late 2005, and the flatness of hires before declining in the months just before the recession:
Now let’s look at the same time frame up until this month’s release:
You can see similar peaks of quits and hires in late 2014, and the general flatness in hires over the last year. The rates of YoY change are equivalent to those at the end of 2006.
If the same pattern as the last economic cycle were to hold for this one, JOLTS would show continued deceleration before rolling over into an actual recession about 12 months from now.
Meanwhile the LMCI has been slightly negative virtually all this year. As shown in the graph below, this is consistent with slowdowns (as in 1985 and 1995) as well as prior to recessions:
Still, the LMCI has not declined nearly as much as it typically has prior to most of the recessions in the last 50 years. At the same time, note that the LMCI does a pretty good job forecasting the direction of the YoY change in employment (red). So the YoY trend in the monthly jobs report is likely to continue to decelerate.
While I’m not forecasting any actual negative monthly job reports in the near future, the YoY payrolls graph still shows continued deceleration. Here is a bar graph of the monthly gain in jobs for the last 3 years, minus 150,000, better to show the deceleration from the peak of nearly 2 years ago:
The 4th quarter of last year showed job increases of over 250,000 per month. It is a virtual certainty that the job reports for this quarter are going to average much less.
In summary, both the LMCI and the JOLTS reports have been adding to the accumulating evidence that we are getting late in the expansion, if we only go by these two metrics, and we follow the 2001-07 template, a recession could begin within about 12 months. Which means that this month’s housing data, as well as the long leading business profit and residential investment data in the first Q3 GDP estimate will take on added importance.
I just love these kinds of charts which tell us where we’ve been and where we are (sort of) and let anybody decide what they mean as to where we’re going … depending only on one’s own imagination.
Now if the data were shown with statistical probabilities … uncertainties… they MIGHT provide some real information. As it stands they provide no information about the future days, weeks, months or even years.
Maybe, just maybe if the JOLTS data were correlated with several other economic indictors AND those correlations had any better certainties, then the combined sets of information might be a better, though still uncertain indication of future conditions … within some specific time periods.
Personally, I think the economy’s overheated already and have been thinking it should have started to crash / recede to zero growth or less quite awhile ago…. but that’s just my guts, totally without any substantive or rational basis .. e.g. my imagined beliefs. So I keep looking for some rational and objective evidence to support my belief, but I’ve found none yet. We could go on like this for a long time yet or not… it’s ;purely a coin toss in this real world we live in.
To get a recession people have to lose their jobs first .. which is to say their source of ability to consume. If they can borrow a lot they can still keep buying stuff so businesses keep producing stuff but that can only go on so long as people can borrow a lot.
So you always have to ask yourself what objective facts exist to say with a 95% probability or even 90%, that business’s will lay off their employee.. i.e. what will precipitate businesses to decide to not just stop hiring but to in fact lay people off.
There are fundamentally only two reasons business’s will lay people off on an economy wide basis.
1. A sudden and completely unexpected event occurs somewhere on the globe that will guarantee a reduced consumption of goods. In that event, business an rationally and objectively know that whatever levels they’re now producing and have on order or in process will not be consumed and will thus have no market demand for them within n-days or weeks. So to save money they stop production and lay people off relatively rapidly. This cascades of course and employment plummets, consumption then plummets with it fueling even more layoffs, etc. until some “bottom” is reached.
2. See 1 above.
So if you look back to every recession’s basic driver…e.g. the “unexpected” event you’ll find you cannot predict what they were going to be or when they were going to occur. And if you could, then so could everybody else on the planet that had a stake in the profit games.. and then short of an pure environmentally produced or natural event, the people with a stake in profits would have taken steps to avert a loss in profits before the event occurred… and so it wouldn’t in fact occur and there’d be no recession.. a mild and short lived intra-quarter hiccup at most..
I disagree, it looks like we are heading toward the expansion blowoff first when the natural recovery ends and debt expands faster to keep the expansion going. That means instead of a recession, we get a “Boom” by late 17. That expansion of debt is what means future recession.