Below is a brief transcript from The Macro Show in which, earlier today, Hedgeye U.S. Macro analyst Christian Drake explained why the labor market hasn't yet put in its peak.
"The data tree still fell in the forest yesterday even if no one heard it.
The Jolts data, jobs openings and labor turnover data, comes out on a one month lag to the non-farm payrolls data so this is the July data. It gives you the internals on the gross flows of hirings and separations.
You can see in the chart we’re at a new all-time high of 6.17 million. Don’t get too excited about that. We’ve been making cycle highs or all-time highs for the past three years. Still the read-through is that if business sentiment and confidence is such that businesses feel compelled to hire that’s a positive. (The NFIB Small Business Optimism index remains near post-financial crisis highs of 105.3.)
From an accounting perspective, total job openings tends to peak about a year ahead of the total peak in employment growth so if you’re trying to handicap the cycle, another new cycle high isn’t the peak. That’s a positive.
Furthermore, if job openings are up and labor supply is down, because of continued hiring, the labor market should be tightening as we show here in the next chart.
This is available workers per job opening. So you can see another new cycle and all-time low. There are 2 available workers per job opening.
A brief note on what this chart isn’t. We’re defining available workers as unemployed plus not in the labor force but wanting a job. Now, there are a couple things you can say about it. What it doesn’t capture are workers who are part-time for economic reasons. These are people that do have a part time job, would like a full time job but there are no full time jobs available. We still have 5.3 million workers how are part time for economic reasons. That’s a lot. It’s at the lows of the cycle and falling but we’re still about 1 million more than we’ve seen over the previous two cycles.
This next chart is total churn in the labor market, so total hires and separations. That also made a new high at 10.833 million in July. You can see that it just breached the cycle high and is just shy of the cycle high in the previous peak. We’re showing here the dynamism in the labor market and fluid flow of workers. Labor market dynamism, in turn the activity and churn in the labor market, is a sign of the dynamism in the broader macro economy.
The takeaway here is that dynamism peaks well ahead of the economic cycle and we’re still putting in that peak currently."