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By New_Deal_democrat January 11, 2018 10:59 am
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A relationship to watch in 2018: hiring leads firing
Perhaps the biggest single thread in my overall business cycle analysis in the past year or two is that we have come to the later part of the cycle, but on the other hand there are no signs of any near-term decline.
 
While the net number of jobs created or lost in the economy (a/k/a nonfarm payrolls) is one of the four important markers of the onset of a recession itself, that number can be decomposed into hiring vs. firing (or, more universally, separations).  The simple fact is, as we can see from the full JOLTS history, that hires (red) lead separations (blue)(quarterly):
 
 
They did so at both the 2007 peak, and the early 2000s and 2009 troughs.  We had what I called the "shallow industrial recession" back in 2015, and even in 2016, hiring led firing again:
 
 
A similar and more timely marker for firing is the 4 week moving average of initial jobless claims. Below I've broken down the 50+ year series into three segments, measured YoY:
 
 
With the exception of the 1974 oil shock, and the 1981 Fed-engineered rate shock, this series also turned up, i.e., an economic negative, before the onset of recessions.
 
Note that I am using the 4 week average because all of the noise inherent in the single week's number.  To the point, in the last two weeks the number of weekly jobless claims has exceeded that of one year before.  But we are precisely at the point where holiday seasonality plays the most havoc with weekly numbers, so the four week moving average helps reduce that distortion.  Obviously, should the number of layoffs be over 250,000 for the next couple of weeks as well, then we would have something to watch more carefully!
 
So, let's put this data together and compare YoY hiring from the JOLTS series (blue), and the 4 week moving average of initial jobless claims (inverted, red):
 
 
Both of these remain positive.
 
If the Fed continues with its gradual "normalizing" rate hike regimen, an important marker to look at in the real economy for the remainder of 2018 is whether hiring turns down, and if it does, does firing look like it is turning up, or a negative, as well?
 
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