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.