More Americans are voluntarily relinquishing their jobs as they become increasingly confident about business conditions; a trend that Janet Yellen, the next Federal Reserve chairman, is monitoring.
Almost 2.4 million U.S. workers resigned in October, a 15 percent hike from a year earlier, based on seasonally adjusted data from the Department of Labor. These employees represent 56 percent of the overall separations, the 13th consecutive month above 50 percent and the topmost mark since April 2008. November figures are scheduled to be published January 17.
This ratio -- “a reliable indicator of consumer confidence” -- has been “slowly grinding higher” and probably will continue to increase this year, said Nicholas Colas, chief market strategist at ConvergEx Group, an institutional equity-trading broker in New York. It’s a “confirming and explanatory signal” for the closely watched labor report because it highlights shifts within the workforce, he said.
The quits ratio is highly correlated with how Americans feel about the job market and is especially helpful because it separates behavior from intentions, showing “what people are doing, not what they say they’ll do,” Colas said. “Voluntarily leaving one’s position requires a fundamental level of confidence in the economy and in one’s own personal financial story.” The ratio in November 2006, about a year before the recession began, was 58 percent.
Rising Share
The share of Americans who say business conditions are “good” minus the share who say they are “bad” rose in December to the highest in almost six years: minus 3 percentage points, up from minus 4.2 points the prior month, based on data from the Conference Board, a New York research group.
Job seekers also are more optimistic about the hiring environment. Sixty-three percent of callers to a job-search-advice help line December 26-27 said they believed they could find new employment in less than six months, up from 55 percent a year ago, according to Challenger, Gray & Christmas Inc., a human-resources consulting company.
This shows that many Americans see “more room to move” within the workforce and may start to “vote with their feet,” said John Challenger, chief executive officer of the Chicago-based company. “People now are being proactive in the decision, rather than reactive, and that’s a sign of a healthier economy and job market.”
Industry Variations
Turnover still varies by industry. Among people working in retail trade, 402,000 voluntarily left in October, up 26 percent from a year earlier, Labor Department data show. Meanwhile, the number of government employees who quit fell by almost 13 percent compared with the prior year. The figures are collected as part of the quarterly census of employment wages and are based on a sample of 16,400 nonfarm business and government establishments.
Colas has been monitoring the monthly Job Openings and Labor Turnover Survey, or JOLTS, for several years and anticipates it will get “a lot more attention” because Yellen -- slated to replace Fed Chairman Ben S. Bernanke when his second term ends January 31 -- follows this report. It may provide clues to the direction of central-bank policy, he said.
Data about voluntary departures is one of six gauges Yellen has said she uses to judge the strength of the labor market. At a March 2013 conference, she said “a pickup in the quit rate, which also remains at a low level, would signal that workers perceive that their chances to be rehired are good -- in other words, that labor demand has strengthened.”
Labor-Market Tightness
More people voluntarily leaving their jobs underscores a “common refrain” Jack Ablin is hearing from many of his clients: It’s difficult to find qualified staff right now in many industries. This labor-market “tightness” is evident because departing employees already have a new position lined up or are increasingly confident they’ll find a better one soon, said Ablin, chief investment officer at BMO Private Bank in Chicago, who helps manage $66 billion in assets.
With more jobs being created and the unemployment rate “easing,” the rise in the quits ratio is “one piece of the mosaic that seems to be fitting into place,” Ablin said.
The jobless rate -- at 7 percent in November -- is the lowest in five years, according to data from the Labor Department, which is scheduled to release December figures tomorrow. Meanwhile, economists forecast payrolls grew 195,000 last month, according to the median estimate in a Bloomberg survey. This would put employers on pace for average monthly gains of about 189,000 last year, the most since 2005, when the average was 207,000.
Strength Overstated
Even so, the ratio of quits to total separations may be “overstating strength in the labor market,” according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. Analyzing the underlying data shows that “things don’t look as good as they seem.”
The number of Americans who quit their jobs in October still is about 24 percent below a pre-recession peak of 3.1 million in November 2006, when the quit ratio was 58 percent, based on seasonally adjusted figures from the Labor Department. Meanwhile, separations -- which also include involuntary departures such as layoffs -- were 4.2 million, almost 21 percent below the November 2006 level. The 18-month slump began in December 2007.
Retirements, Buyouts
There also is a third category of separations -- “other” -- that could include scenarios such as retirements or managers offering employees a buyout to leave the company.
“This doesn’t show as much improvement as the quits ratio,” LaVorgna said, adding that the numbers indicate a “labor market that isn’t as great as what the unemployment rate suggests.”
LaVorgna said he will pay more attention to these figures because of Yellen’s apparent affinity for the data. However, rather than providing a leading indicator of labor trends, he says the JOLTS report helps corroborate other information, particularly because it’s released with such a lag.
He’s optimistic the number of Americans quitting their jobs will continue to rise along with hiring this year. He forecasts the U.S. economy will expand 3.4 percent in 2014. That compares with a projection by central-bank policy makers of a 2.8 percent to 3.2 percent increase, according to their central-tendency estimate released December 18, which excludes the three highest and three lowest forecasts.
Firmer Footing
The U.S. appears to be on firmer footing, though Ablin always is looking for data that either refute or confirm current trends, he said. “The bottom line” is jobs, and the JOLTS data -- along with other labor-market indicators -- suggest growth in the U.S. “is rebounding and even accelerating.”
Similarly, Colas said the most-recent figures support “lasting improvement” in employment. Yellen has reminded investors and economists of this “underappreciated observation,” which serves as a “long footnote” to hiring information released the first Friday of each month, he said.
The quits ratio provides a “very reliable picture” of how American workers are faring, Colas said. “It shows the contours of the labor market in a different fashion.”
