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By New_Deal_democrat July 13, 2015 2:44 pm
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JOLTS, temps, initial jobless claims point to post mid-cycle jobs slowdown

 Bill McBride a/k/a Calculated Risk (and also The Nicest Guy in the Econoblogosphere) and I, have different takes on the latest several JOLTS  reports.  Bill thinks 
that the soaring job openings make for a "solid report," while I am concerned that hires are stalling - just as hires stalled while job openings continued to increase in 2006-07.

In the broader sense, it looks to me like hiring is beginning to slow down - something that it tends to do somewhere after the midpoint of an expansion.  Let's take a look.

So first, let's look at the JOLTS data.  This series started in 1999 so there is really only one prior full expansion for which we have data:

Note that hires (red) topped first, in early 2005.  Quits (green) and layoffs (inverted, purple) topped in early 2006. Job openings (blue) continued to rise until late 2006.

Compare with the last year.  Inverted, layoffs may have peaked in late 2013.  Hires and quits both appear to have made at least an interim peak in late 2014. Job openings are still rising.

If - and it's a very big "if", since we only have one prior expansion to compare current data to - this expansion follows the prior pattern, then we are late in the game.

Second, another data series that has weakened of late is the temporary staffing index of the American Staffing Association. Here is the 52 week graph of that index beginning with 2010:

In addition to the clear seasonal pattern, with dips at the 4th of July, Thanksgiving, and after Christmas through mid-January, note that it has tended to rise throughout the rest of the year with only two exceptions, highlighted in this next graph:

In late 2012, the index turned flat.  Since the beginning of May this year, the index has gone into decline.  It hasn't done that since 2008.

Since temporary hiring is generally regarded as a leading indicator for hiring overall, this has to be seen with some concern.

But both JOLTS and the ASA Staffing Index do not have long histories.  On the contrary, jobless claims do have a long history, and we can compare hiring and firing back half a century by comparing initial jobless claims with nonfarm payrolls.

Here's the first way to look at jobless claims vs. payrolls, a comparison I have made in the past.  In general, as an economic expansion slows, for a given level of initial jobless claims, there are fewer new hires. The below is a scattergram, with the monthly average of initial jobless claims on the Y axis, and monthly payrolls growth on the X axis, for the 2002-07 expansion:


In the bottom left, we see mid-20007 when below-300,000 jobless claims were associated with weaker payrolls. Thereafter layoffs increased and jobs only averaged 100,000 until the 2008 recession  began.


And here it is for the last 5 years:

This year, even though we have had fewer initial jobless claims than in 2014, we have created fewer net new jobs than in the later part of last year. The comparison is deteriorating - not by much, but a little.

Here's a second way to look at jobless claims vs. payrolls.  The below two graphs compare the YoY% change in payrolls (blue) and initial jobless claims (inverted, red) averaged monthly.  First, here is 1965-82:

and here is 1983-present:

Notice that jobless claims lead payrolls at both peaks and troughs.  In every single expansion, initial jobless claims turn negative YoY first, and then payrolls follow with a pronounced lag.

A caution is that, more often than not, both payrolls and jobless claims get a "second wind."  At least in 1984 and 1994-96, the temporary deterioration in jobless claims coincided with a stall or spike in interest rates:

Once interest rates declined further, jobless claims abated and then payroll strength increased.

Here is a close-up of the last 5 years of jobless claims vs. payrolls:

While the YoY positivity of jobless claims spiked in late 2014, and YoY payroll growth made at least an interim peak at the beginning of this year, it is too soon to sat if that is the peak for this economic expansion, although I suspect it is.

The reason? The population-adjusted rate for initial jobless claims is already at an extreme low, matching its all time record:

In fact, it has been making new record lows for the last year. Although that in itself is already a caution that new record lows don't automatically make a bottom, I question how long this can continue. If the decline in new jobless claims decelerate, let along go sideways, the strong suggestion is that payrolls will follow suit. And remember, in prior cases of a "second wind," interest rates also made a new low.  Again, that's possible, but if they would be new lows not seen in over 50 years.

In summary, there is a pretty good chance that the YoY growth in payrolls peaked late last year, and if past patterns prevail, that means we are now in the later innings of the expansion.

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