JOLTS Shows Labor Market Still Historically Tight

• The US economy continues to grow in mid-2022. The ISM services index fell slightly in June but remained firmly in expansion at 55.3%.
• Details were generally good, and all 18 industries covered reported expansion over the month.
• The labor market remained historically tight in May, according to the JOLTS.
• The US economy should continue to expand in the near term, although recession risks are elevated in 2023 and 2024.

Recession concerns in mid-2022 remain way overblown. The ISM services index remained firmly in expansionary territory in June at 55.3%, well above the 50% level that indicates growth. The index was down slightly from 55.9% in May, and this was the lowest reading since May 2020, when the economy was recovering from the pandemic-caused recession.

Three of the four components used to calculate the overall index were above 50% in June; the exception was employment, which fell from 50.2% to 47.4% over the month. Job growth has been very strong so far in 2022 even as the services employment component has been bouncing around 50%, so the slight dip to below 50% in June is not concerning. According to the comments, the problem remains one of labor supply; businesses cannot find workers to fill their open positions.

Two of the four components used to calculate the overall index rose in June, business activity and supplier deliveries. Although supplier deliveries increased slightly over the month, they are down sharply from late 2021, indicating that supply chain problems in the economy are easing. The new orders component remained strong at 55.6% in June but was down from 57.6% in May.

Other details were generally solid. The prices paid component remained very high at 80.1% in June but was down from 82.1% in May and almost 85% in March. Inflation remains extremely high but is set to slow in the second half of this year. Firms continue to struggle to fill inventories, with the inventories index down to 47.5%, from 51.0% in May.

All 18 industries covered reported expansion in June, with the strongest growth in mining, as high energy prices support energy production.

There is a lot of recession talk in the media, but the economy is expanding in mid-2022, although growth is slowing to a more sustainable pace. The ISM manufacturing index was at 53% in June, also indicating expansion, although also down somewhat from May (56.1%). PNC’s baseline forecast is for slower growth in the second half of 2022 and in 2023 as higher interest rates weigh on the economy; this will reduce inflationary pressures.

PNC’s forecast is for no recession in the near term, although recession risks remain elevated at around 40% over the next couple of years, about double what they were prior to the Russian invasion of Ukraine. Recession is very unlikely in 2022 given current strong fundamentals, but risks are elevated in 2023 and 2024 due to the delayed impact of higher interest rates.

The labor market remained very tight in May, according to the Job Openings and Labor Turnover Survey (JOLTS). Job openings fell slightly, to 11.3 million, down from 11.7 million in April, with the job openings rate down to 6.9% from 7.2%. This only takes the job openings rate back to where it was in late 2021.

Hirings held steady at 6.5 million in May, unchanged from April, with the hiring rate steady at 4.3%, close to where it has been throughout 2022.

The share of workers quitting a job was unchanged in May from April at 2.8%. This is near the highest quit rate on record, going back more than 20 years; with strong demand for labor and the job market historically tight, workers are taking the opportunity to seek out better opportunities.

Although the JOLTS report is somewhat dated, the labor market remained historically tight in May, another indication that the economy is nowhere near recession. PNC expects job gains of 250,000 in June when the Bureau of Labor Statistics releases the government’s official jobs report on Friday.

PNC expects the unemployment rate to decline slightly to 3.5%, which would match the pre-pandemic low and would be the lowest unemployment rate in more than 50 years. Job growth is slowing to a more sustainable pace in mid-2022 given the tight labor market but is still very good and strong enough to support continued economic expansion.

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