Market Overview

Last Time Job Openings Surged Like This, We Limped Into Recession

Last Time Job Openings Surged Like This, We Limped Into Recession

Peak Hiring?

Last week some data was released that is beloved by the Federal Reserve. While it may give insight into this week’s Fed moves, it also helps us understand where we are in the economic cycle and where to position our investments accordingly.

JOLT (Job Openings Layoffs and Turnovers) is a survey of employers by the Bureau of Labor Services, and it’s a sister report to the BLS’ Payroll Report. It follows a similar methodology: survey a sample set of employers and extrapolate. In theory it offers insight into future labor demand:

  • Job openings and layoffs may indicate hiring intention, both magnitude and direction.
  • Turnover (or quits) measures voluntary separations and may indicate whether employees are quitting for greener pastures (the job market is strong and competing for employees).

There’s a strong leading relationship between JOLT Job Openings and Nonfarm Private (NFP) Payrolls. Job openings signal employer intent and payrolls are the outcome.


Properly read, JOLT data signals economic inflection points, the key being ‘properly read’. Rising job openings does not always mean good times ahead. Job openings peaked in the 1H of 2007, even as the Recession was at hand.


Part of the reason is that companies are often in denial when circumstances turn negative. Nobody wants layoffs, most of all publicly traded companies for whom layoffs are a signal of business troubles that will hit their stock prices. On the other hand, job openings are a great signal for economic turnarounds because following downturns, companies will hire only if the business demand is there.

Another way the data gets sliced is by looking at the Quits. When times are great, the number of people job hopping increases. Notice that this figure went negative as we got closer to the Great Recession.


Is history repeating itself?


  • JOLT: Job openings have surged to the highest level since August 2006.
  • Similar pattern: Notice the sudden surge that seems to come out of nowhere.
  • Not broad-based: In 2006 and again this month, the JOLT Job Openings surge centered on retail and professional services (admins).



Per JOLTs: The Core Economy Has Stopped Hiring

As in late 2006, the core economy (manufacturing and construction) was fading and JOLT Job Openings was flat for those sectors. Similarly, new job growth came in the form of temp hiring as the holiday shopping season began to kick in.

We know what happened less than a year later: recession.

Extremely Low Quit Levels

Quit levels drop when employees have job security concerns and employees are in no hurry to leave their jobs. Quits levels have been falling and just dove to a 2-year low.


One And Quickly Undone: The Fed Will Misread The Tea Leaves

We have a divergence, which is a great investing opportunity.

The JOLT data says that employers are ramping up minimum wage jobs. Given the timing (July), these are meant for holiday shopping support, which means they are likely part-time jobs as well.

I think what we’re seeing is employers getting a jump-start on hiring for the 2015 shopping season. Recall that UPS had to revamp its hiring last year and bring on new employees earlier (in response to the enormous shift to online shopping). Government models always have trouble keeping up with real-world structural changes, so the JOLT data is also likely exaggerated by the BLS model.

Another way to tell that this JOLT data doesn’t reflect current demand is to look at Jobless Claims. Unlike the modeled data in the JOLT figures, Jobless Claims are real: every claim reflects an individual who lost a job. These are exactly the employees that would benefit from any surge in retail/food/admin JOLT Job Openings.

Though, as the real world data shows, Jobless Claims show no sign of a pickup in demand. If anything, recent claims are rising and signaling less demand.


What To Do

First, treat the JOLT and Payroll data with caution. History shows that we have rising payrolls and job openings when the recession is right around the corner. It’s too soon to know if jobs have peaked but it certainly has that flavor, especially when we consider that Jobless Claims have bottomed – another historically precise indicator of a recession around the corner.

Second, understand that the Fed does not see things the same way. Instead, the Fed will read the surge in JOLT Job Openings as a sign of tight labor demand, and use it as justification for a rate hike.

We don’t think a hike is going to happen this week, but if it does – this week or next month or even in December – it’s going to be ‘One and Undone’. In other words, the Fed will raise rates only to back them down very quickly in 1Q or 2Q 2016, because that’s when they will be forced to acknowledge a sharp drop in the US macroeconomy.

Into November, we are bullish the market in the short term for several reasons. In no particular order:

  • Fed rate hike creates certainty: The Fed is acting like an undecided prom date. Will she or won’t she say yes? At this point, nobody really cares about the answer, they just want the Fed to make up its mind. Any answer will spark a waiting-to-exhale rally.
  • Market has bottomed for now: Liquidity drove markets down 10%. The cost of money has soared recently and until the Fed speaks, a lot of risk has been built in. Once a decision is out, the cost of money will drop, and that’s good for the market.
  • Dollar weakness: The dollar got too strong too fast (up 22% against the yen and euro in one year!). Expect some weakening, which is also good for the market.
  • Santa Rally: You may have noticed that the market seems to move up towards the end of the year. That’s because of bonuses on Wall Street, which are based on performance into October. So September is a month when managers re-position their portfolio, throwing out a lot of dead weight. That creates selling pressure.

The biggest reason to be bullish? The Fed spent trillions to pump up the US stock market, and is not about to walk away from that. An 8% rally is going to begin Friday.

I like QLD calls but it’s very high risk. QLD is an ultra-long ETF that doubles the magnitude of the a market move. If you expect an 8% rally, QLD will move about 16%. If the market dives 5%, QLD dives 10%. These calls are a way of juicing the returns by adding leverage.

To be clear: we are trading a rally and nothing more. I am keeping my eye on the exit door.

The labor data (even that seemingly bullish JOLT Job Openings data) is signaling a recession in less than 12 months. I don’t want to be a bull when the market turns bearish.

Between now and then, there will be opportunities to be long and short. Many companies will be oversold, for example.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Andrew Zatlin Job openingsOpinion Economics Markets Best of Benzinga


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