Green Shoots in the Labor Market

There are many measurements for state of the labor market – the headline unemployment (U-3), the broader measure capturing underemployment (U-6), labor force participation rate, layoffs data, job posting data, among others. Labor market, in-general, tends to be a lagging indicator in the economic cycle. But one labor market data point that tends to be leading indicator is the ‘Quits ratio”, measuring how often people willingly quit their jobs, something that happens when they either have a better job lined up or are confident that thay can find another soon. Interesting, this was said to have been an indicator that the last Fed Chair Janet Yellen mentioned often as very informative.

As the graph below shows too, in both 2002 and in late 2009, this indicator started rising right after the recession ended (and when a recession officially ended is decided upon by NBER much later). This ratio dropped sharply from 2.3% in Feb to 1.8% in March. However it bottomed at 1.4% in April and has been rising since to 1.9% in June (latest BLS data available). It is very well possible that the dynamics are a little different in the COVID era when people may quit solely for health reasons overriding everything else. However it is important to note that the job posting data (from Indeed.com) also shows job postings bottomed out in May.

While acknowledging the tremendous pain in the labor markets, these are nonetheless very encouraging predictive signs. #economicrecovery  #labormarkets