Summary: US quit rate slips to 2.6% in October; some indicators “heading in the right direction”; US yields down, expectations of higher rates soften; quits, openings down, separations up.
The number of US employees who quit their jobs as a percentage of total employment increased slowly but steadily after the GFC. It peaked in March 2019 and then tracked sideways until virus containment measures were introduced in March 2020. The quit rate then plummeted as alternative employment opportunities rapidly dried up. Following the easing of US pandemic restrictions, it proceeded to recover back to its pre-pandemic rate in the third quarter of 2020 and trended higher through 2021 before easing through much of 2022.
Figures released as part of the latest Job Openings and Labor Turnover Survey (JOLTS) report show the quit rate slowed in October. 2.6% of the non-farm workforce left their jobs voluntarily, down from September’s 2.7%, as quits in the month declined by 34,000 and an additional 261,000 people were employed in non-farm sectors.
“All in all [the report is] welcome news for the Fed that some of these indicators are heading in the right direction, but nothing to shake an assessment that the labour market is currently inconsistent with at-target inflation,” said NAB economist Taylor Nugent.
The report was followed by a much-anticipated speech by Fed chief Jerome Powell and US Treasury yields finished the day noticeably lower. By the close of business, the 2-year Treasury bond yield had shed 14bps to 4.33%, the 10-year yield had dropped by 15bps to 3.60% while the 30-year yield finished 6bps lower at 3.74%.
In terms of US Fed policy, expectations of higher federal funds rates over the next 12 months softened. At the close of business, contracts implied the effective federal funds rate would average 4.125% in December, 30bps higher than the current spot rate, and then climb to an average of 4.71% in February 2023. May 2023 futures contracts implied a 4.94% average effective federal funds rate while November 2023 contracts implied 4.675%.
The fall in total quits was led by 52,000 fewer resignations in the “Professional and business services” sector while the “Construction” sector experienced the largest gain, increasing by 31,000. Overall, the total number of quits for the month fell from September’s revised figure of 4.060 million to 4.026 million.
Total vacancies at the end of October decreased by 0.353 million, or 3.3%, from September’s revised figure of 10.687 million to 10.334 million. The fall was driven by a 146,000 decrease in the “Professional and business services” sector while the “Other services” sector experienced the single largest increase, rising by 76,000. Overall, 10 out of 18 sectors experienced fewer job openings than in the previous month.
Total separations increased by 18,000, or 0.3%, from September’s revised figure of 5.665 million to 5.683 million. The rise was led by the “Accommodation and food services” sector where there were 49,000 more separations than in September. Separations increased in 8 out of 18 sectors.
The “quit” rate time series produced by the JOLTS report is a leading indicator of US hourly pay. As wages account for around 55% of a product’s or service’s price in the US, wage inflation and overall inflation rates tend to be closely related. Former Federal Reserve chief and current Treasury Secretary Janet Yellen was known to pay close attention to it.