A quick look at a timely topic of interest - with a brief review of why it could matter to investors.

Chart of the Week

July 21, 2014

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3-month average nonfarm payrolls and JOLTS total monthly job openings


Source: Bloomberg, as of 6/30/14. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • A better than expected US jobs report for June (released July 3) and a stronger than expected JOLTS (Job Openings and Labor Turnover Survey) report for May (released July 8) added more weight to the view that the US labor market is firming.
  • For confirmation, investors will watch closely for additional signs of labor market tightening—especially evidence of faster growth in worker compensation.
  • Higher pay is good news for workers and for the pace of economic growth. But it can also be a signal of rising inflationary pressures, a potential trigger for change in Federal Reserve (Fed) policy.
  • To date, pressure on wages has been restrained and inflation benign; the Fed has clearly signaled its intention not to act preemptively against inflation, given the weak state of this recovery.
  • But if jobs growth continues to accelerate, labor market conditions are likely to tighten further. That, in turn, could lead to speculation about the Fed acting sooner than expected, and to higher yields and volatility in the bond market, regardless of the Fed's actual statements or actions.
  • Of course, at the individual security level, volatility-driven price swings can provide opportunity that active investment managers may be able to exploit to create value.

The chart:

  • The chart shows the rolling 3-month average gain in US nonfarm payrolls and the rolling monthly total of job openings from the JOLTS report—both reports generated by US Labor Department's Bureau of Labor Statistics.
  • The 3-month average gain in nonfarm payrolls was 272,000 in June, the best 3-month average since March 2012 and the third strongest since the recovery began in June 2009.
  • Total job openings in May JOLTS report were 4.635 million, the highest since June 2007.

Context & Perspective:

  • According to the latest Nonfarm Payrolls report, the US economy created 288,000 new jobs in June, building on gains of 324,000 in May and 224,000 in April.
  • The report was stronger than expected and created a lot of buzz about acceleration in jobs growth. While this could be true, it will take a longer series of strong reports to confirm the trend.
  • Job gains over the past three months helped lift the 12-month average gain to 208,000 in June compared with a 12-month average of 195,000 a year ago.
  • The May JOLTS report showed 4.635 million job openings compared with 4.166 million two months earlier in March. That 2-month jump of 469,000 was the largest 2-month increase since April 2010.


The Federal Reserve Board ("Fed") is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The data for the Job Openings and Labor Turnover Survey (JOLTS) are collected and compiled monthly from a sample of business establishments by the Bureau of Labor Statistics (BLS). The JOLTS program covers all private nonfarm establishments, as well as federal, state, and local government entities in the 50 states and the District of Columbia. Data are collected for total employment, job openings, hires, quits, layoffs and discharges, other separations, and total separations.

The Current Employment Statistics (CES) survey, commonly referred to as the establishment survey or nonfarm payrolls report provides information on employment, hours, and earnings of employees on nonfarm payrolls. The BLS collects these data each month from the payroll records of a sample of non-agricultural business establishments—about 144,000 businesses and government agencies, representing approximately 554,000 individual worksites and approximately one-third of all nonfarm payroll employees.

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