With Alan Turing much on my mind these days (being knee-deep in Andrew Hodges’ outstanding book and having just seen the phenomenal movie it inspired), it’s hard not to apply the word Enigma to todays’ labor market. Without question, the overall trend of the labor market has been positive for quite some time and momentum has recently been accelerating. The U.S. economy added 2.65 million jobs in the first 11 months of 2014 (as compared to 2.25 million jobs through November of 2013) and November’s gain of 321,000 jobs marked the 5oth straight month of positive job growth and the largest monthly gain since January of 2012. 2014 will stand as the best year of U.S. job growth since 1999. As Krugmam so perfectly articulated in his editorial entitled ‘Tidings of Comfort’ on December 25th:
Consider next the state of the economy. There’s no question that recovery from the 2008 crisis has been painfully slow and should have been much faster. In particular, the economy has been held back by unprecedented cuts in public spending and employment.
But the story you hear all the time portrays economic policy as an unmitigated disaster, with President Obama’s alleged hostility to business holding back investment and job creation. So it comes as something of a shock when you look at the actual record and discover that growth and job creation have been substantially faster during the Obama recovery than they were during the Bush recovery last decade (even ignoring the crisis at the end), and that while housing is still depressed, business investment has been quite strong.
What’s more, recent data suggest that the economy is gathering strength — 5 percent growth in the last quarter! Oh, and not that it matters very much, but there are some people who like to claim that economic success should be judged by the performance of the stock market. And stock prices, which hit a low point in March 2009, accompanied by declarations from prominent Republican economists that Mr. Obama was killing the market economy, have tripled since then. Maybe economic management hasn’t been that bad, after all.
But despite all of those most welcomed data points, there are a number of critical aspects of the labor market that remain perplexing to economists. Chief among them are questions relating to how much slack remains in the labor market and when wages will start to rise should steady job gains continue in 2015 as most believe will be the case. We touched on it last month, but wage growth has hardly budged at all and the labor force participation rate remains at historically low levels. Digging into those issues raises questions around the shift in the Beveridge Curve and the extent of ‘Labor Market Scarring’ from the Great Recession as well as broader macro-trends such as the pace of baby-boomer retirement and widely debated structural changes in the economy and today’s labor market. All of these issues (not to mention the real or imagined impact of the Affordable Care Act, states’ minimum wage laws, a strengthening dollar, etc.) will be of paramount importance in forecasting job growth, GDP growth, inflation, and when the Fed will raise interest rates. And as complex as those issues are, there isn’t even consensus around what the labor market will look like in the next 60 to 90 days, let alone the next 12 months.
Things are always a bit turbulent as far as forecasting job growth at year-end goes, and this year is no different. With strong holiday hiring in the second half of 2014, seasonal factors should be more dramatic than in years past. Combined with that, weather always seems to play into some people’s forecasts, as do other seasonal factors like ADP’s ‘Purge Effect’ and to what extent companies might accelerate hiring earlier in the year, to name just a few. While the horrific mess in Washington (particularly Congress) seems to be having less impact on labor market uncertainty as compared to years past, new questions have arisen around what net impact the price of oil might have on hiring.
Putting this all together, the big question is whether or not the labor market can sustain the kind of job growth we saw in 2014 or if the optimists are going to get crushed yet again (see Charlie Brown/Lucy analogy from our blog post last April). As the WSJ pointed out this morning, “For the past five years the economy has given several head fakes, where job growth looked to be achieving real velocity only to falter.” Unfortunately, the data from LinkUp points to a somewhat disappointing start to 2015.
In November, the blended average of new and total job listings from our search engine (which indexes 2.5 million job openings from 50,000 company websites) fell 12.7% from October. Because the best indicator of a future hire is an employer posting a job opening on its own company website, the steep decline in job openings from November points to weaker job growth in December and serves as the basis for our below-consensus forecast. We are projecting that the U.S. economy added a net gain of only 170,000 jobs in December, well below the 250,000 consensus estimate.
As disappointing as it would be to have December’s numbers come in below consensus, a net gain of even 170,000 jobs would still cap off a phenomenal year of job growth.
Presented in slightly different form…
Unfortunately, both new and total job openings in LinkUp’s job search engine fell again in December. New job openings by state dropped 6%, while total job openings fell 3% from the prior month. Those declines were broadly distributed across the U.S., with 37 states showing a decrease in job openings and 46 showing a decrease in total job openings.
New and total job listings by category didn’t fare much better, with new and total job openings falling from November by 7% and 3% respectively.
Based on the decline in LinkUp’s job openings in December, our preliminary forecast for January is that the U.S. economy will add only 120,000 jobs in the first month of the new year. Regarding our 60-day forecast, however, it’s important to note that because of our ‘paired-month’ methodology, we’ll get another set of data for January when we compare January’s numbers to December’s numbers in 30 days, and our forecast for January will be updated accordingly.
Luckily, our data from December wasn’t all doom and gloom. On a slightly more positive note, LinkUp Job Listing Duration fell from 43.6 days in November to 42.2 days in December, providing an encouraging sign that the pace of hiring continues to accelerate.
LinkUp’s Job Listing Duration indicates the number of days that job openings were on LinkUp before they were removed from our search engine at some point in the past 6 months, presumably because they were filled with a hire. Looking at the chart above, between July and December, 2.9 million job listings were taken off company websites throughout the country, 1.1 million of which were on the company’s corporate website for less than 15 days, 615,000 of which were on the site for between 16-30 days, etc. The average number of days that all 2.9 million job openings were listed by the employer on their corporate website was 42.2 days, down from 51.0 days in April. So according to our data, the pace of hiring among the companies in LinkUp’s job search engine accelerated in Q4, a good sign that companies are filling their jobs faster and more aggressively than they were earlier in the year.
While this is good news for sure, it potentially conflicts with the overall decline in new and total job openings on LinkUp in December. Or perhaps the decline in job openings last month can largely be attributed to seasonal factors given that 25% of the drop in new job listings were in Retail. But of course, even after removing Retail jobs from the total, new job openings still fell by 32,000 from November. Chalk it up as just one more enigma to add to the list of question marks that will only be answered as the year unfolds.