Waiting for the other shoe to drop

Summary

The low hiring rate suggests firms have been keeping a lid on headcount through the passive means of hiring freezes and natural attrition. As demand for new workers remains under pressure, layoffs need to stay low to keep payrolls expanding at a solid rate and the unemployment rate from rising. As such, layoffs require an increasingly close eye, but which measures to watch?

• Jobless Claims: Although the level is historically low, initial claims have been rising on a year-ago basis since late December. The current gap between the hires and separations rates implies initial claims only need to rise a bit further to a run-rate of around 255-265K to grind payroll growth to a halt, assuming the hiring rate and other separations rate remain unchanged.

• JOLTS layoffs & discharges: JOLTS data provide an estimate of all layoffs, not just workers who file for unemployment insurance. Recent readings have been benign; theinvoluntary separations rate remains historically low and has been range-bound between 1.0% to 1.1% over the past eight months. That said, the JOLTS data are released with a bit of a lag, and show a pickup in layoffs in the transportation & warehousing industry.

• WARN notices: Large firms (100+ employees) must provide workers with at least 60 days of written notice prior to layoff in the event of a plant closing or mass layoff, making WARN Act notices a particularly early read on layoff activity. The national "WARN factor" has moved higher since last year and is currently hovering at an elevated level relative to the past expansion.

• Challenger job cuts: Announcements of job cuts are a leading indicator of layoffs, but the length of the lead time and relationship with payrolls is not as tight as the WARN factor. Efforts to reduce the federal workforce have helped to drive a recent spike, but announcements excluding government have also picked back up and suggest firms are re-evaluating staffing decisions lately.

None of these measures suggest a decline in payrolls is imminent. But the uptrends offer an indication that demand for existing workers is eroding, which could threaten the labor market as demand for new workers remains low. Keep an eye on layoffs when determining whether job growth is on the precipice of lurching lower, or if employers can continue to hunker down and wait out the strains of current monetary and economic policy.

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