Labor market data is historically complicated to analyze. First of all, monthly employment data from the Bureau of Labor Statistics comes from two different surveys whose results don’t always line up. Second, similar to most economic data points, the employment results are subject to revision, which can have a dramatic impact on the final result. Third, there’s confusion over which unemployment rate really matters – the headline unemployment number or total unemployment. Let’s simplify the labor market equation by turning our attention to job openings and labor turnover (JOLT).
JOLT helps us understand the health of the labor market by focusing on job openings, new hires and total separations, which are comprised of layoffs, quits and other separations. JOLT provides several key data points, such as:
- Labor turnover – an important activity metric.
- Net job growth. For example, if hires exceed total separations, the economy is enjoying net employment growth.
- Current level of job openings. Job openings stood at 5.1 million nationally as of February 2015, a healthy rate by historical standards.
Shifting gears, let’s think of JOLT in terms of the apartment market. Tenants move out of apartments primarily due to lifestyle changes, a shift to homeownership, affordability concerns or a job change. When we look at JOLT on a regional basis, there appears to be a strong correlation between the number of separations and mobility.
In the Midwest and the Northeast, two regions that tend to have higher lease renewal conversion rates, total separations have remained flat. Furthermore, in the Northeast, hires and separations run very close, suggesting net job growth is flat. And job openings are not as robust as in other parts of the country. On the other hand, the South and West regions have been experiencing an upward trend in both total separations and job openings. Employment opportunities tend to increased mobility, which typically translates into lower lease conversion rates.
Obviously, there are other factors in play when forecasting renewal probabilities – product availability, rent level, and a life event, for example – but an employment change has an impact. People want to live close to where they work. And investment? An insight into renewal probability will only improve the quality of underwriting deals.
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