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A Red-Flashing JOLT: Manufacturing Job Openings Signal Recession Dead Ahead

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Contrary to the April nonfarm payroll data, today’s JOLTS report was simply ugly. First, the total number of Job openings of 4014K, missed significantly the expected number of 4125K, dropping 111K last month, and the worst since December’s 212K tumble when as everyone recalls, the weather was extensively scapegoated as the reason why the economy is not performing as the priced to perfection central planning expects it to.

And now that weather excuses no longer can be abused, the experts finally repeated what we first said in November when we reported that “The Time To Hike Rates Is Now According To The Beveridge Curve” starting with Stone McCarthy:

… Typically openings precede payroll gains. Over the past 6 months openings increased by only 116,000. This isn’t consistent with the payroll growth of late

… the relationship between openings and the unemployment rate, the co-called Beveridge Curve, suggests that there has been a structural shift in the curve typical of an increase in structural unemployment and perhaps a higher NAIRU than generally thought….

Then from Bank of Tokyo:

… JOLTS suggests there is not a whole lot of slack in the economy…. Labor market much closer to being satisfactory, much closer to maximum employment than policymakers acknowledge…

From Barclays:

… Ratio of unemployed job seekers to job openings rose modestly to 2.61 in March from 2.54 in February, near lowest level since July 2008…

And finally from Bloomberg:

Uptrends in openings, hiring are stalling at weak levels, supporting Yellen’s concern about labor market slack… Data suggest labor market similar to jobless recovery of 2003 or situation ~6-mos. ahead of 2007 recession

Ignoring that what this means is that the Fed should start hiking right about now, what did Bloomberg say – that the Labor market appear reminiscent of pre-recession stages? Why yes.

Below is a chart showing just how stretched the divergence between job openings, which tend to be a great leading indicator to employment, and actual employment. In fact, it has never been bigger. And since there is about a 6 month lag before the weakness in openings is manifested in the labor market, that means the monthly job numbers are due to start surprising to the downside right about… now.

 

But labor weakness is just the beginning.  A far worse harbinger revealed by today’s JOLTS data is seen when one looks at the openings only for manufacturing jobs, which have now declined for 4 consecutive months: the longest negative stretch in the so-called recovery. The chart clearly shows that the last time we had an identical lack of improvement in manufacturing jobs, the US economy entered a recession, or as we like to call it, a depression, just that month!

 

Finally, recession or not, one thing is clear: when it comes to hiring, the so-called recovery has been one epic farce, because while the monthly jobs print may be back to pre-recession levels (courtesy of a collapse in actual firing and quitting, and retention of part-time workers sending productivity plunging), actual hiring is still about 50% off its prior cycle highs and it too appears to be slowly but surely plateauing. 

If next month’s JOLTS data does not show a marked improvement, 18-24 months from now the NBER may come to a conclusion that the recession started just around June of 2014.

Source: JOLTS


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