KEY DATA: Trade Deficit: $6.1 billion narrower; Exports: +1.1%; Imports: -1.4%/ Openings: +998,000; Hiring: +69,000; Quits: +384,000/ NFIB: -0.2 point.
IN A NUTSHELL: “The only thing keeping job growth down is the ability to find workers.”
WHAT IT MEANS: Over the past two months, almost 840,000 new positions were added to the economy, and some are calling that weak. I don’t know what yardstick is being used, but it isn’t weak. But there is a reason why we haven’t seen even better payroll increases and it isn’t because of a lack of need. In April, the government’s Job Openings and Labor Turnover Survey (JOLTS) posted its largest number of job openings and the rate of openings also hit a record high. Nearly a million additional positions went wanting. That is unheard of. Businesses are doing their best to hold the line, as hiring rose, though somewhat modestly given the need, and layoffs declined. However, workers are quitting at a record rate and the level is exceeding hiring. So, when you add the reopening of the economy to strong growth and rising quit rates, it should surprise few that job openings are soaring.
Another sign that the labor market is having structural issues was seen in the May National Federal of Independence Business’ report. Optimism, which should be surging, was down a tick. But more importantly, the report noted that “May is the fourth consecutive month setting a new record high reading for unfilled job openings.” Skilled labor is extremely scarce as “Forty percent have openings for skilled workers”. At the same time, a growing percentage of firms are in the market for workers, so this problem is not going away anytime soon.
On the trade front, the deficit narrowed sharply in April. That is good news, as fewer dollars flowed out of the economy into foreign economies. But this closing of the gap is not likely to be sustained, as imports of consumer goods and vehicles fell sharply. The economy is booming, and the total import drop may have only been due to the outsized 7.5% gain posted in March. The economy is expanding way to strongly for imports to be declining.
IMPLICATIONS: The labor market is facing a set of uncertainties it has never seen before. Yes, there have been labor shortages before, but not at current levels. There is government policy that, at least to some extent, has elevated the number of those receiving unemployment compensation. But maybe most importantly is the issue of reopening offices and whether employees can or will work from home. Some CEOs may believe that workers should “get over it” when it comes to the commute, but for workers who have a choice of where to work, they just may not want to get over it. Working at home may be a key factor in retention. Workers are quitting at record rates and while we don’t know for certain why that is happening, work location is likely a factor. For those who prefer working at home or a hybrid structure, the demand to return to the office may be a reason to look for other another position. Just a couple of years ago, we were talking about how Millennials viewed a job as a steppingstone, not a career, so loyalty to a company was not a major factor in employment decisions. If you add work from home to the mix, we could be in for a major churn in employment. That is good for workers, as companies will have to bid even more to attract them. Firms may have to pay up to poach workers, even if some of that compensation comes as locational flexibility. Retention and attraction policies will have to move to the forefront if businesses are to meet the growing demand. How that plays out is hard to predict, but it will be very interesting to watch, especially for investors. For many companies, the ability to effectively manage their workforce in this uncertain labor environment could become the critical factor in profitability.