The latest BLS Job Openings and Labor Turnover (JOLT) report [DATA HERE] reflects a headline of 4.3 million U.S. workers quitting in December. However, that number is 161,000 fewer quits than November. The job openings are starting to fill up.
While there is evidence the mandatory vaccine requirements are still working through the job market, we are still about another month away before the fog clears from the private sector employment data.
This Friday we will see the unemployment data from December, but in the interim this JOLT’s report is tracking with CTH expectations.
The primary driver of the quits rate has been inflation. Workers seeking higher wages in an effort to deal with inflation can get faster paycheck results by switching jobs rather than asking current employers for more money.
We have been watching this trend for several months. However, the rate of job-jumping is slowing down as the available jobs to jump into are fewer, and the vaccine mandate impact is settling down.
Despite the number of job openings, blue collar workers are starting to see job vacancies decreasing. The service industries around accommodation, food services and basic dirty fingernail positions still have many vacancies; this is the epicenter of where the job jumping takes place. Employment in durable goods manufacturing is at that phase where things are about to get sketchy for tradespeople and union workers.
The white collar jobs are static and/or slightly downsizing. The total number of hires was 6.3 million for December, a drop of 333,000 from prior month. The number of people hired in professional and business services dropped by 159,000.
(CNBC) – […] “All of this is uncharted territory,” says Rucha Vankudre, a senior economist at Emsi Burning Glass, a labor market analytics firm.
The U.S. saw record-breaking months of turnover throughout 2021, with early signs of trouble kicking off in April as vaccination efforts improved, consumer activity rebounded and businesses scrambled to re-staff to meet demand. Workers, especially in low-wage service roles, quit their jobs for higher pay. (read more)
While the situation may be unfamiliar or “uncharted,” I don’t necessarily agree that it is difficult to see what’s happening. Massive inflation is having an impact on workers across the board. Checkbook economics are the priority as working class people and families are making decisions for themselves against the backdrop of everything costing so much more.
The FRED personal savings rate for Americans overall [DATA HERE] has been dropping rapidly since March 2021, the last federal COVID employment bailout injection. All of the federal assistance has created massive data skews in the savings rate, as federal subsidies gave an artificial boost to the U.S. savings rate. Those same COVID bailout injections also propped up payrolls.
It appears the aggregate American worker has used their savings, created by COVID bailouts, to offset the massive inflation created by the COVID bailouts. The net result is a workforce going into negative savings each month as inflation driven expenses (energy, fuel, food) are higher than earnings. This is an unsustainable situation.
There is obviously a large retirement factor in the quits rate; however, it does appear the vaccination mandate was also an influence. Additionally, when talking about people living paycheck-to-paycheck, rapid inflation almost always causes job-jumping for workers to get higher wages.
Excess inventories, as noted in the GDP data, seem to indicate that wholesalers and mid-sized businesses are started to see contractions in sales or demand. With demand decreasing, the eyes of owners and managers turn toward the payroll. This outlook would match the productivity drops we noted last month.
(DECEMBER CTH) – “The value of all products and services generated increased by 1.8 percent. However, the labor cost of generating that small amount of added value increased by 7.4 percent. The difference between those two numbers is a drop in productivity of 5.2% over the entire quarter.
This is the largest quarterly drop in productivity since 1960 !
The Biden administration will blame the drop in productivity on a lack of material to produce the end product (ie. the COVID excuse). Which means employed people were sitting around waiting for goods to arrive and being less productive. There is a small amount of that which might be true. However, it is not the biggest factor, at least not on this scale. Keep in mind we are talking about both goods and services.
The more likely cause of such a massive decline in productivity is a genuine decline in demand. In the aggregate, consumers needed less goods and services. This likelihood aligns with the diminished and softened retail sales figures recently noted. It is a simple cause and effect. When gasoline, energy, and essential products like food cost more, consumers have less money for other stuff. Demand for the non-essential products drop.” (more)
When we look at the macro picture, things look a lot clearer than the financial pundits talk about.
After the March 2021 peak of savings rate (massive fed spending bill), sometime around June of 2021, the U.S. economy overall started to jam up. In May of 2021, the first round of massive inflation started, what the Fed and White House called “transitional”, but we noted it wasn’t.
Then, new home housing starts, and contracts for new homes yet to be built suddenly stopped, while at the same time (June/July 2021) new permits for construction dropped. From that moment forward prices for food, fuel and energy related products started a massive upward spike. Despite the Fed and administration “transitional” talking points, the prices continued to climb and inflation was growing month over month.
The middle class and working class started to really feel the inflationary pain in the second half of 2021. It was not the Delta variant driving this economic pain, it was inflation and the collapse of disposable incomes. By the time we get to November 2021, suddenly the low employment gains shocked the financial pundits. A few weeks later, we saw sales data from November go down, and retail hiring for the holiday season was non-existent.
Take a look at the timeline in hindsight. At exactly the wrong time last year, September 2021, Joe Biden mandated vaccination for all U.S. workers. The economic data was sending signals that things were tenuous, but no one was paying attention. The already tenuous economy and labor pool (economists ignoring) was hit with an ultimatum of forced vaccination or get fired.
It’s not a single factor leading to this quits rate data. As you can see, there is a snowball effect inside the data. Wages earned, including any pay raises, have been chewed up by much higher inflation. When we look back upon this economy in a few months, I am increasingly certain we will identify the inflection point as June of 2021. That’s when things peaked and started to go down.
When people feel inflation, they look for pay raises. Workers need higher wages to maintain their rising cost of living. Larger employers are slower to respond to pay raises driven by worker needs, and many have very structured pay raise guidance.
Ex. if a worker needs a raise (immediate inflation driven), and the boss or organization is less responsive (structured pay raise schedule or performance review), the worker can get a faster pay raise by quitting their employer and going to work at a higher entry wage rate with another firm. If the job market is tight, the worker can make much more doing this. This is called job-jumping. In my opinion, this has been a big factor for several months.
So, what does the labor market look like in your town? What is going on in/around your community and local economy? Are you seeing a drop in spending habits overall for the people around you?
Commonsense would tell us a workforce hunkering down, forced to spend savings to survive and dealing with massive rising costs (food, fuel, energy and housing); leads to a retraction of spending on non-essential items, a drop in demand for durable goods, and will ultimately lead to less employment.
Two-thirds of our economy is contingent upon consumer spending. If that spending is forced by inflation toward only essential purchases the economy overall starts to contract.
What is the employment situation around you?
