KEY DATA: Openings: +71,000; Hires: +59,000; Quits: +41,000/ NFIB: +7.4 points
IN A NUTSHELL: “Even with workers in short supply, small business owners are euphoric about the future.”
WHAT IT MEANS: Wages increased sharply in the last employment report and there is every reason to think those gains can be sustained. Job openings rose in November and while they are not near their record highs, they have stabilized at a very strong level. Most of those, however, were for government positions. Hiring, which had started a downward trend, in the middle of the year, has also stabilized. But the really important number in the Bureau of Labor Statistics’ JOLTS report was the quit data. It appears that workers are showing a growing willingness to leave their jobs and that is a clear sign that the labor market is really tight.
Small business owners are also indicating they are having trouble finding qualified workers. In December, the National Federation of Independent Business reported that 44% of their respondents said there were “few or no qualified applicants for the positions they were trying to fill”. As a consequence, job growth was minimal. Yet this business segment looks like it has welcomed the Trump victory with open arms. The percentage of business owners saying they expect the economy to improve rose by a “stratospheric” (NFIB term) 38 percentage points. Those expecting greater sales jumped by 20 points. We are not talking happy here, we are looking at euphoria. Interestingly, these companies will have to actually hire a lot more workers if they expectations are to be met.
MARKETS AND FED POLICY IMPLICATIONS: The buoyant views of the small business sector hold out great hopes that the economy can pick up steam this year. Owners seem willing to hire and expand, but they need to be able find the workers to hire and those are in short supply. Tax cuts will help the bottom line, but they unless the improved after-tax earnings translate into a willingness to pay more, small businesses will not be able to create as many new positions as we might expect. Let me repeat this mantra again: If you cannot attract qualified workers at the going wage (and it is clear that small businesses have been unable to do that), the choice is to do without or raise wages. If growth accelerates, owners will face the choice of not meeting demand because of a lack of workers or paying up to attract qualified workers from other firms. But the impacts of fiscal policy are well into the future, so don’t look for any major increase in wages for a while. With the inauguration ten days away, the markets will not be watching these secondary data very closely, so I don’t expect much of a reaction. But it is good to know that small business owners are hopeful. The pressure is on the political leadership to deliver tax and regulatory changes that help these firms, not the usual tax changes that do a lot for bigger companies but leave small businesses behind. Here’s a suggestion: Stop the double-taxation of small business owners. Don’t make them pay twice for Social Security and Medicare – once for their own income and a second time for the company, which is their own income anyway.