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.