KEY DATA: Openings: +142,000; Hires: -111,000/NFIB Optimism: +2.3 points/Employment Trends: +0.5%
IN A NUTSHELL: “Though small businesses are becoming more optimistic and job openings are increasing, hiring has yet to hit its full stride.”
WHAT IT MEANS: The December jobs number was a lot better than expected with firms of all types hiring people with all kinds of skills. But we can and likely will do better. The Bureau of Labor Statistics reported that in November, the number of job openings rose solidly. The rate of openings has now reached the highest point in nearly 14 years. Basically, there are an awfully lot of open recs for positions, despite the fact that hiring has ramped up. But with the number of openings surging by over 20% over the past year, the 9% increase in hiring could not keep up. Part of the problem may be the continued unwillingness of workers to leave their jobs. While the number of people quitting was up nearly 7% over the year, the quit rate is not much different than where it was during the early part of the recession.
If job gains are to accelerate, the small business sector will have to play a major role and that is a real possibility. Small Business optimism jumped in December to its highest point since October 2006. The percentage of owners thinking it is a good time to expand soared and is finally approaching more typical expansion levels. Similarly, hiring and compensation plans are nearly at normal levels as well.
Finally, the December Conference Board Employment Trends Index was released yesterday and it rose sharply. Over the year, the index increased a robust 7.5% and the gains accelerated in the fourth quarter. That too points to better job growth ahead.
MARKETS AND FED POLICY IMPLICATIONS: The likelihood is that the strong job gains we have been seeing will continue and may even ramp up. Ultimately, those openings will have to be filled. Right now, hiring, despite the solid payroll increases, is not as strong as it can be. Small businesses are saying that they cannot find qualified workers, but they are at a point where they will have to either raise wages more and/or expand their employee search activities. Meanwhile, if you talk to employment services firms, you discover that large companies are still dithering over their hiring decisions. They haven’t figured out that the longer the wait the more candidates they lose. Many companies still think they are living in a world of unlimited supply where they can pick and choose employees as they please. That reality is disappearing, as witnessed by the huge number of openings, but clearly not enough to change behavior significantly. It is only a matter of time. And time is what the Fed seems to think it has. I still believe that wage pressures are being artificially dampened and when they break out, the increases will be rapid. But I have been saying that for a while now and it has not come about. That only tells me that the pressures may be even greater than I thought and if they are, the Fed will once again find itself behind the curve.
KEY DATA: Openings: +149,000; Year-over-Year: +838,000; Hires: -20,000; Year-over-Year: +543,000/Employment Trends Index: +0.4%; Year-over-Year: +6.1%/NFIB: +2 points
IN A NUTSHELL: “The November job gain may have been a bit excessive, but there is little doubt that business hiring is accelerating and it needs to ramp up even more.”
WHAT IT MEANS: Now that “jobs, jobs, jobs” has taken its place in the trash heap of political slogans and we are switching to “wages, wages, wages”, it is critical to understand how great the pressures are on businesses to increase labor compensation. It looks like employment cost pressures are building and the dam that is holding it back could be breaking soon. Two indicators of the condition of the labor market were released yesterday and today. The Bureau of Labor Statistics’ closely watched Job Openings and Labor Turnover survey (JOLTS) showed that openings continue to increase. Since October 2013, unfilled positions have increased an incredible 17.5%. In part that is due to the failure of businesses to fill those positions. Private sector hiring lagged by nearly 300,000 workers over the past year and actually eased a touch in October. As a consequence, we are back to a job openings rate that we haven’t seen since the dot.com bubble began bursting in 2001. Employees are quitting their jobs at growing numbers, though in fits and starts. The level was down a touch in October but is still up over 12% from last year.
A second measure showing that the labor market is tightening is the Conference Board’s Employment Trends Index, which rose solidly in November. The index is closing in on the last expansion’s high reached in early 2007. Also, the National Federation of Independent Businesses’ Small Business Optimism Index jumped in November. Expectations soared. It appears that even small company owners are starting to feel better about conditions. These indicators also support the view that the November employment report was not greatly out of whack.
MARKETS AND FED POLICY IMPLICATIONS: The FOMC meets next week and the members have to make some determinations about the tightness of the labor markets and how long they will have to wait before they start seeing sharper wage increases. The large increase in November is hardly enough to create any major worries at the Fed. But just about every conceivable labor market indicator is blinking either yellow or red. So the November wage gain should be taken as a warning that the hoped for – or dreaded, depending on where you sit – faster labor compensation increases may be closer than most believe. The big debate right now is whether the FOMC’s statement will remove the phrase “considerable time”, which has been used to indicate that rate hikes are well into the future. I think the November jobs report has given the Committee the perfect cover to do just that. That would not signal that a rate hike was coming right away. Indeed, several more months of decent wage increases would be needed. But it would provide the foundation for starting the rate normalization process sometime during the first half of next year.
KEY DATA: Openings: +235,000; Hires: -294,000; Quits: -74,000/ETI: +0.3%; Year-over-Year: +6.1%
IN A NUTSHELL: “There are lots of openings but firms still seem to be reluctant to hire.”
WHAT IT MEANS: There is cognitive dissonance in business workforce actions. According to the Bureau of Labor Statistics Job Openings and Labor Turnover Survey, JOLTS, firms have large numbers of job openings. The level jumped in August and over the year, openings rose by more than 23%. That is a clear sign of great need. Unfortunately, companies did not go out and fill those positions. Hires actually declined and since August 2013, the pace increased a mere 1%. There is a real backlog in the HR departments that will have to be whittled down and for the economy, the sooner that happens the better. That implies that job growth should accelerate. As for job mobility, the quit rate moderated. I am not sure if that is due to continued fear of becoming a free agent or that firms are starting to do things to retain workers. A second indicator of the state of the labor market, released yesterday, also pointed to improving conditions. The September Conference Board’s Employment Trends Index rose to its highest level since fall 2007, a few months before before the economy went into recession.
On the housing front, CoreLogic reported that home prices rose modestly in August. Not surprisingly, the year-over-year rise decelerating once gain. The question is, how much more will it ease? We need prices to rise solidly so more homeowners will have enough equity to be able to sell their homes.
MARKETS AND FED POLICY IMPLICATIONS: Hiring and job openings are not in synch and ultimately, something has to give. Firms can try to keep up with demand by pushing productivity, but we know that has not been very successful lately. The next step is to throw in the towel and start adding to workforces. The August hiring short fall is reflective of the less than stellar gain in nonfarm payrolls that month. I suspect that the September JOLTS report will show that hiring expanded, in line with the jump in payrolls. But the problem facing firms is that the number of people unemployed per job opening, a proxy for availability, has fallen to a level not seen since May 2008. The vast supply of workers is just not there anymore. Companies will have to start bidding workers away from other firms. That is the change in the market that I have been waiting for because it will signal that wage increases will begin accelerating. When that happens, incomes will rise and while housing price gains may be limited, the ability to purchase a home will improve and that would offset a rise in interest rates. The Fed will continue to watch the labor markets closely and these reports reinforce the view that conditions are getting better but have yet to reach the point where the Fed absolutely has to act. Of course, the Fed should move before they have no choice, but that is a different story. Investors, meanwhile, are worried about world economic conditions. But falling gasoline prices should boost consumption allowing for better U.S. economic growth going forward. Of course, you have to be linked to the U.S. economy for that to really help earnings.