Summary: US quit rate falls back to 2.9% in December; JOLTS figures does little to dissuade view of tightness in US jobs market; points to “very strong labour demand”, “high worker confidence”; quits, separations down, job openings up; “soft” non-farm, ADP reports expected, likely to be “temporary blip”.
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 before trending higher through 2021.
Figures released as part of the most recent Job Openings and Labor Turnover Survey (JOLTS) report show the quit rate fell back in December after it made a new series-high in November. 2.9% of the non-farm workforce left their jobs voluntarily, down from November’s 3.0%. There were 16,000 fewer quits during the month and an additional 651,000 people employed in the non-farm sector, leading to a fall in percentage terms.
“The JOLTS report was also out last night and, after Fed Chair explicit reference to the report last week as evidence of a tight labour market, the overnight update has done little to dissuade this view,” said NAB currency strategist Rodrigo Catril.
The report was released on the same day as the ISM’s January PMI report but US Treasury yields barely moved on the day. By the close of business, the 2-year Treasury bond yields had slipped 1bp to 1.17%, the 10-year yield had inched up 1bp to 1.80% while the 30-year yield finished unchanged at 2.12%.
In terms of US Fed policy, expectations for a higher federal funds rate over the next 12 months softened slightly. At the close of business, March contracts implied an effective federal funds rate of 0.22%, 14bps higher than the current spot rate while June contracts implied 0.665%. February 2023 futures contracts implied an effective federal funds rate of 1.345%, 126bps above the spot rate.
“The US December JOLTS report pointed to very strong labour demand and high worker confidence in finding new, better-paying jobs. It’s all pointing one way; higher wages and sticky inflation,” said ANZ senior economist Catherine Birch.
The fall in total quits was led by 89,000 fewer resignations in the “Health care and social assistance” sector and 64,000 fewer resignations in the “Accommodation and food services” sector. The “Retail trade” sector experienced the single largest increase, rising by 52,000. Overall, the total number of quits for the month fell from November’s revised figure of 4.499 million to 4.338 million.
In contrast, total vacancies at the end of December increased by 150,000, or 1.4%, from November’s revised figure of 10.775 million to 10.925 million. The rise was driven by a 133,000 increase in the “Accommodation and food services” sector while the “Finance & insurance” sector experienced the single largest decline, falling by 89,000. Overall, 11 out of 18 sectors experienced more job openings than in the previous month.
Total separations decreased by 305,000, or 4.9%, from November’s revised figure of 6.205 million to 5.900 million. The fall was led by the “Accommodation and food services” sector, where there were 65,000 fewer separations than in November. Separations decreased in 13 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.
“The market is looking for a soft Omicron-impacted non-farm and ADP reports this week [and] the JOLTS survey supports the view that this is likely to only be a temporary blip,” NAB’s Catril added.