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The JOLTs Job Opening Indicator is Flashing Green

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Updated

Job reports are a good forward indicator of the labor market

The Job Openings and Labor Turnover Report (or JOLT) from the US Bureau of Labor Statistics (or BLS) is a good forward indicator of the labor market. The BLS compiles data from a random sample of private non-farm businesses. Job openings are one piece of the report. The other piece addresses hires versus separations.

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February job openings up 23%

There were 5.13 million job openings in February 2015, up 23% year-over-year. Those job openings came in below the Wall Street estimate of 5.01 million and well above the 3.6 million average since the BLS began compiling the index in 2000. This was the highest reading since 2001. In early 2000, the index peaked at close to 5.2 million, and it bottomed at 2.2 million in mid-2009. Most sectors reported increases in openings.

There were 4.9 million hires in February, about the same level as January. The quits rate (which measures the number of people who quit their job and is used as an indicator of employee confidence) was just under 2.7 million. This number has been trending upward since last year, although it has softened a touch over the past few months. Perhaps some of the weaker economic data we have been seeing is beginning to worry workers.

Implications for mortgage REITs

Mortgage REITs like Annaly Capital (NLY), American Capital Agency (AGNC), and MFA Financial (MFA) will be buffeted by volatile interest rate movements as the economy continues to recover. You have the push and pull phenomenon of European rates pulling bonds lower, while strength in the US economy pushes them higher. Non-agency REITs like Two Harbors (TWO) use less leverage and invest in higher yielding mortgage-backed securities. This makes them somewhat more insulated from the day-to-day volatility of interest rates.

Investors who are interested in trading the mortgage REIT sector as a whole should look at the iShares Mortgage Real Estate ETF (REM). Investors that are interested in making directional bets on interest rates should look at the iShares Barclays 20+ Year Bond Fund (TLT).

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