08/13/14   Taking Up The Slack

Editor’s Corner

Ron Rowland

JOLTS, the Job Openings and Labor Turnover Survey, is the latest indication of improving labor market conditions.  Unlike the widely followed monthly employment and payroll reports issued the first Friday of every month, the Labor Department’s JOLTS has lived in relative anonymity – until now.

Yesterday’s report claimed U.S. employers had 4.67 million job openings as of the last day of June.  Not only was this an increase from 4.58 million the prior month, it was also the highest level since February 2001.  In addition, this was the first time there were more openings than the pre-Great Recession peak of 4.66 million in March 2007.  However, there is still a long way to go before getting back above the Technology Crash levels of early this century.  There were a reported 5.27 million openings in January 2001.

Similar to the monthly employer payroll report, the Bureau of Labor Statistics compiles JOLTS data monthly from a sample of nonfarm establishments.  The program covers all private nonfarm establishments, as well as federal, state, and local government entities.  It collects data for total employment, job openings, hires, quits, layoffs and discharges, other separations, and total separations.

There were 4.83 million new hires in June (a six-year high) and 4.55 million separations for a net increase of 280,000 employed.  This aligns with the 288,000 increase in payrolls originally reported for June, prior to it being revised to 298,000 a month later.  JOLTS figures are also subject to revision.  Over the 12 months ending in June 2014, hires totaled 55.7 million and separations totaled 53.3 million, yielding a net employment gain of 2.4 million.

The Fed has been outspoken in its concern that the official unemployment rate doesn’t convey the whole story and “considerable slack” remains in the labor market.  Factors such as the low participation rate and the large percentage of part-time workers are also important to the big picture.

Therefore, the Fed is increasingly looking at alternative indicators to better gauge actual conditions.  Fed watchers believe wage growth is the key data point the Fed is scrutinizing and is the best measure of excess workforce slack.  JOLTS also helps fill the voids, and the June report was mostly upbeat.  One relative weak spot was in the category of voluntary quits.  They increased for the month but are still below pre-recession levels, indicating a continued lack of confidence on the part of employees to switch jobs.

Investor Heat Map: 8/13/14


The steep slide that stocks took in late July and early August seems to have abated for now, but day-to-day volatility remains elevated.  Technology has held on to the top spot throughout this period, suggesting it may provide the leadership for the next upward move.  Real Estate climbed two notches and continues to recover from its mid-June slump.  Consumer Discretionary was at the bottom for most of the second quarter but has been improving since then.  The trend continued this week as it climbed to fifth and flipped from red to green.  Telecom went the other way, plunging six places and moving into negative momentum territory.  The huge gains of a few weeks ago on the favorable IRS ruling have been completely undone and then some.  Defensive sectors typically act in unison, but that trait was missing this week and has been noticeably absent for most of the year.  Consumer Staples and Utilities both gained in value while Health Care slumped.  Relative ranking was a different story, as only Consumer Staples was able to show an improvement there, climbing two spots.  Health Care held its third place ranking while Utilities actually slid a spot back down into last place.


There is not much dispersion across the momentum values for the style categories, especially in the upper tier.  Just three points separate first place from sixth, and adding a dozen more points encompasses all eleven categories.  Unlike the sector rankings, the style rankings display a definitive defensive alignment.  Mega Cap is on top, followed by the three Large Cap categories, then the Mid Caps, the Small Caps, and finally Micro Cap on the bottom.  Although no changes occurred in the ranking order, the bottom of the list posted the best improvements in momentum scores.  Micro Cap improved by nine points while Mega Cap added only two.


All global categories except the U.S. lost momentum for the week, although the gain for the U.S. wasn’t enough to improve its seventh-place ranking.  However, it was enough to push the U.S. barely into positive territory, increasing the quantity of categories in the green to seven.  China, Latin America, and Emerging Markets remain one-two-three at the top.  Like last week, China is far out in front with the other two tied and lagging behind.  Canada swapped places with Pacific ex-Japan as the two resource-rich categories remain in the upper tier.  The bottom six regions kept their same relative order and for the most part ended the volatile week little changed.  World Equity, the U.K., EAFE, and Europe are the four categories in the red, with Europe now extending its stay on the bottom to seven weeks.


The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.


“There is little slack remaining in labor markets.”

Michael Gapen, Economist at Barclays 8/12/14


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