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.