ETF Trends
ETF Trends

What the JOLTS and other related data may indicate about the direction of the economy

By Hafeez Esmail, Main Management Chief Compliance Officer

When most people hear the word “jolt” it tends to conjure up thoughts related to a surge of electricity. However with respect to economic data it refers to something quite different. The Job Openings and Labor Turnover Survey (JOLTS) may provide some interesting insights into the employment picture. The July JOLTS data showed that the number of people quitting their jobs (Quits) moved higher while layoffs declined.

When the number of people leaving their jobs (Quits) increases it’s usually because people are confident in their ability to get another job. That tends to suggest a more robust employment picture. There are additional reasons for those leaving their jobs to feel emboldened. As the chart below indicates, the number of job openings increased sharply to 5.87 million in July, and the number of people hired also moved higher to 5.23 million.  That said, the rate of hiring did grow at a slower pace than the number of openings.


The ratio of hires to job openings moved lower to 0.89 underscoring that there are more open jobs than positions being filled.  One of the reasons that openings do not match the pace of hiring may be because there is a mismatch between the skill set of workers and the type of job openings.  As an example, if one person leaves his job as an auto technician, he probably wouldn’t have the skills needed for a job opening as a computer engineer.

The National Federation of Independent Business (NFIB) August 2016 Report of Small Business Economic Trends indicated that 30% of small business owners “said they had job openings that they couldn’t fill”.  In addition, 15% said that “finding qualified workers was their biggest problem”. Both observations point to the skill set mismatch as a possible root cause.

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The JOLTS data also showed that the number of unemployed persons per job opening moved even lower to 1.32 persons per open job. There are a couple of reasons why this may be the case.  First is that there is an increasing shortage of labor for the various forms of employment. This is likely to be at least part of the reason as the employment picture continues to improve after the great recession.  However, a contributing factor is likely that the skills job seekers have do not align with the skills that employers desire.


While the employment picture has improved considerably since the great recession, the skills mismatch will likely dampen wage inflation and potentially create a long term structural drag on the US economy. In their “Closing The Skills Gap” report compiled in 2014, JP Morgan Chase recognized that there were 1 million middle-skill jobs in New York City with a median hourly wage of $31.88. Importantly, at the time, they anticipated 44,000 new middle-skill job openings every year for the following 5 years for positions such as registered nurses, computer programmers and graphic designers.

Absent the implementation of an “employer-led, sector-based workforce development system”, many of these jobs would not be filled. JP Morgan pledged an investment of $250m globally over 5 years to “prepare youth and adults for careers in high demand, middle-skill occupations”. This would involve retooling the public education system to offer career paths in technical education both through high school and the City University network of New York City.

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While this is an encouraging initiative, refocusing the nature of our education system to meet future demand likely needs to occur on a national level. A private/public partnership appears to be a good model to generate efficient outcomes.  However, it seems like more urgency is needed both from private employers and government entities to adapt to the significant changes taking shape in the employment landscape.

Hafeez Esmail is the Chief Compliance Officer at Main Management, a participant in the ETF Strategist Channel.

A pioneer in managing all-ETF portfolios, Main Management LLC is committed to delivering liquid, transparent and cost-effective investment solutions. By combining asset allocation insights with smart implementation vehicles, Main Management offers a unique approach that translates into distinct advantages for our clients, including diversification, cost efficiency, tax awareness and transparency.