March 17, 2020

.The  Labor Department reported that job openings rose 6.3% in January to 6,963 thousand after having declined 3.5% in December.  Job openings remain at a very elevated level through January.  Indeed, there continue to far more job openings today than there were prior to the recession (4,123 thousand in December 2007).

As shown in the chart below, there are currently 0.8 unemployed workers for every available job.   Thus, there continue to be more job openings today than there are unemployed workers.  Prior to the recession this ratio stood at 1.7,

In  this same report the Labor Department indicated that the quit rate in January was 2.2 which is essentially the highest level since April 2001.   This is a measure of the number of people that voluntarily quit their jobs in that  month.  During the height of the recession very few people were voluntarily quitting because jobs were scarce.  So the more this series rises, the more comfortable workers are in leaving their current job to seek another one.  The quit rate today is 2.2.  At the beginning of the recession it was at 2.0 and the record high level for this series was 2.6 back in January 2001.

Several years ago Janet Yellen used to  claim that there were a large number of unemployed workers just waiting for jobs if only the economy were to grow fast enough.  She is assuming that these people have the skills and are qualified for employment.  But they aren’t..  There are plenty of job openings out there.  What is not happening as quickly is hiring.  Take a look at the chart below.  Job openings (the green line) have been rising rapidly (and are far higher now than they were prior to the recession); hires (the red line) have been rising less rapidly.

Indeed, if one looks at the ratio of openings to hires the reality is that prior to the declines in November and December this ratio has been close to its highest level since this series began in 2000.  There are plenty of jobs out there, but employers are having a hard time filling them.

But this report was for January when the labor market was strong.  All that has changed given the fear regarding the impact of the corona virus and the huge drop in stock prices.  There are going to be layoffs.  Job openings are going to fall sharply.  The unemployment rate is going to rise.  The exact dimensions of these changes will be determined by how quickly the corona virus gets brought under control.

We are encouraged that in the epicenter of the crisis, China, the virus is now well under control. The virus became evident in China in late December.  China took draconian measures to corral the virus and it has worked.  It became clear that it was getting under control by mid-February when the number of active cases peaked at 58,000.  This number is important because it measures the number of people that can transmit the virus.  People who have died or have gotten over the virus, cannot pass it to someone else.  From that mid-February peak of 58,000 the number of active cases has fallen to just 8,000 by mid-March..  Given that China-type draconian measures have now been adopted by the rest of the world, we are hopeful that we will see signs that the virus is getting under control globally by mid-April.  Once that happens and stock market investors recognize that the worst is not going to happen, the stock market will regain its footing,  consumers and businessmen will regain confidence, and the economy will once again turn upwards.

Stephen Slifer


Charleston, SC