Bloomberg Jilted JOLTS, But the Market Could Prove Them Wrong
Bloomberg published an article yesterday downplaying the latest Job Openings and Labor Turnover Survey (JOLTS) data. However, dismissing this report could be a mistake. The September figures revealed a substantial drop in job openings, falling by almost 400,000 to 7.44 million from a revised 7.86 million in August. This signifies a notable shift in labour demand, suggesting that businesses may be scaling back hiring plans due to economic uncertainty or financial constraints.
While JOLTS has its limitations, with a sample size of just 0.6% of establishments and a response rate of around one-third, a decline of this magnitude warrants closer scrutiny. It hints that employers are adjusting their recruitment strategies, potentially marking a turning point where demand for workers begins to cool.
Some argue that the survey's limited scope makes it an unreliable barometer for the broader labour market, particularly given its lower response rate compared to payroll data, which surveys approximately 122,000 establishments. However, even with its limitations, JOLTS can offer valuable insights into emerging labour market trends, especially when it reveals shifts as significant as this. Ignoring these early warning signs risks missing the opportunity to understand potential inflection points in the economic cycle.
For instance, a softer quits rate – which fell to 1.9%, its lowest since mid-2020 – indicates that workers may be less confident about changing jobs. This hesitancy could suggest an underlying cooling of the labour market, even if payroll data continues to show job growth.
Friday's non-farm payroll figures, and particularly the unemployment rate, will arguably provide us with a better measure of labour market conditions. However, it is worth noting that the Federal Reserve, with its "dual mandate" of price stability and maximum employment, is now focused primarily on the job market. This means the risks for the market are not symmetric. If the NFP data is as expected, the Fed will likely continue its easing mode. But if the data comes in much weaker, the Fed might opt for more aggressive easing measures than the market currently anticipates. This asymmetrical response highlights the importance of monitoring labour market indicators such as JOLTS, as they can provide valuable information about the underlying job trends well before the more widely followed payroll data.
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