KEY DATA: Openings: +94,000; Hires: +92,000; Quits: +48,000; Layoffs: -32,000
IN A NUTSHELL: “Businesses are hiring and people are quitting, two clear signs that the labor market is firming.”
WHAT IT MEANS: There no longer is a question that the labor market is getting better. The focus of attention has shifted to how quickly, since that will determine the speed at which worker compensation increases. One report that has taken on more intense focus is the Bureau of Labor Statistics’ Job Openings and Labor Turnover survey. This report is starting to flash red. Job openings are surging and were the highest since early 2001 – over thirteen years ago! Meanwhile, hiring is also improving and that is back to spring 2008 levels, about six months before the banking meltdown. But maybe the most important number in this report, at least as far as I am concerned, is the quits component. People are actually leaving their jobs, something that has been unheard of over the past five or six years. True, the number of people telling their employers to take the job and, well you know what, is still not very high. But that is changing, maybe the clearest indication that the labor market is getting back to normal.
MARKETS AND FED POLICY IMPLICATIONS: Firms are looking for new employees but they are also having trouble filling the positions: Over the year, openings rose nearly twice as rapidly as hiring. That point was also seen in the National Federation of Independent Business July survey which found that 24% of the respondents had trouble filling openings. Firms are also starting to face the problem that a growing number of workers are simply leaving. I have been warning about this likelihood for over six months now and the data are starting to support the view that six years of treating workers as if “they are just overhead” is going to be paid for by much faster increases in wages and/or benefits than most business leaders have been expecting or planning for. And my argument that the decline in the participation rate is due to longer-term demographic and social issues, i.e., it is structural not cyclical, also implies that labor supply will not keep up with demand and wages will have to rise. The Fed can continue on its current course without creating massive problems for a while. But those who think that rates don’t have to rise until the second half of next year are underestimating the rate of tightening in the labor market. I have the Fed beginning to raise rates in the first quarter of 2015 – my forecast since last December – but for that to happen, the FOMC has to start outlining when it will start reducing its reinvestment of assets and then actually raising rates. Quantitative easing is history. Now is the time for Janet Yellen to tell us where we go from here and how she is going to get us there.