Last Week’s Markets in Review: Supply/Demand Dynamics of the Jobs Market
Global equity markets finished higher for the week. In the U.S., the S&P 500 Index (S&P 500) reached record highs and closed the week at a level of 4,247, representing a gain of 0.43%, while the Russell Midcap Index moved 0.33% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 2.18% over the week. International equity performance was also positive as developed, and emerging markets returned 0.46% and 1.85%, respectively. Finally, the 10-year U.S. Treasury yield ticked lower, closing the week at 1.47%.
On Tuesday, the U.S Bureau of Labor Statistics released the April 2021 Job Opening and Labor Turnover Summary, also referred to as JOLTS. The release showed an astonishing 6% rise (vs. the median forecast of -1%) to the job opening level reaching a total of 9.3 million openings. In addition to job openings, the report also draws attention to the number of new hires and separations (i.e quits, layoffs and discharges). The new hire rate remained unchanged for the period at 4.2%, while total separations were little changed at 4.0%. Interestingly, 4 million, or 68.9%, of total separations in April were attributed to “voluntary quits” while in April 2020 nearly 78% of total separations were attributed to layoffs. This drastic flip from layoff to quit separations comes as no surprise to many as pandemic-driven business closures have now transitioned to economic reopening. The below charts from JP Morgan, show a great representation of the flip in total separation.
The question remains as to why during a period of such profound economic recovery that the steepness and level of quits increased to above pre-pandemic levels? According to Goldman Sachs, the mismatch in labor market supply remains suppressed due to three main drivers; early retirement, lingering health concerns, and unemployment benefits. The latter, we believe, is the most relevant cause to the recent “quits” phenomena as those who voluntarily quit are not eligible for unemployment benefits.
With the $1.9 Trillion American Rescue Plan Act signed by President Biden on March 11, 2021, the extension of an additional $300 of unemployment benefits through September 6, 2021, could potentially continue to have a negative effect on the labor supply and the labor force’s willingness to take jobs, which is represented in the below chart from Goldman Sachs. This negative effect, however, may not suppress labor markets much longer as various states have come forward in denying benefits for those not able to provide proof of an attempt at entering/re-entering the workforce.
Although there was some weakness within the recent jobs report, we believe that this weakness is primarily due to a diminished need to enter the workforce right away. With increasing job openings, increased vaccinations leading to decreased health concerns in the workplace, and increased unemployment benefits ending in the coming months, the forward-looking employment prospects are promising. This positive outlook on employment creates a bullish forecast for continued economic recovery and sustained growth in domestic markets.
Although the data discussed above does seem promising, we do believe that the days of short-term bouts of volatility are not behind us. Accordingly, we encourage investors to work with experienced financial professionals to discuss these types of market risks. It is ever more important now to ensure portfolios are consistent with their objectives, timeframe and risk tolerance.
Best wishes for the week ahead!
Sources for data in tables: Job opening and labor turnover data from the Bureau of Labor Statistics on 6/11/21. Charts on Job openings and quits from JP Morgan on 6/11/21. Chart on US Labor Force from Goldman Sachs on 6/11/2021.
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