KEY DATA: Openings: +590,000; Hires: +697,000/ ETI: +0.84 point
IN A NUTSHELL: “With openings exceeding unemployment, strong job gains look to be with us for a long time.”
WHAT IT MEANS: The July job numbers were outstanding, and it is clear why that was the case: Despite all the efforts that firms are putting into finding new workers, robust economic growth is causing employers to lose ground when it comes to filling job openings. The rate of openings, which is openings divided by total employment, was by far and away the highest on record. Indeed, there are more job openings than unemployed workers. Labor market conditions are beginning to look like what they were in the period of 2018 to early 2020, when the unemployment rate was near or at record lows. However, the rate is now about two percentage points higher. The willingness of workers to quit their jobs, which includes leaving a position or moving to another employer, is also as high as we have ever seen it. In other words, while the unemployment rate may be well above what economists consider to be full employment, for employers, that situation has already effectively been reached.
Supporting the view that the labor market is extraordinarily tight was the July rise in the Conference Board’s Employment Trends Index. The index has retraced all that it lost when the pandemic shut things down. As the report note, “Despite the still-high unemployment rate, many employers are still having difficulty finding qualified workers.” IMPLICATIONS: As I noted in my discussion of the July employment data, the huge increases in hospitality and government payrolls are not likely to be sustained or even repeated. But few economists believe that the job gains that approached one million in June and July can be repeated.But keep in mind, payroll increases between 300,000 and 500,000 are viewed as massive, so even if the gains were cut in half, the report would be great. With job openings exceeding unemployed workers, continued robust job gains and further increases in the labor force participation rate, as people are induced to get back out into the market, are likely. But that also means that wage pressures could continue building for an extended period. The solid increases in both consumption and inflation are likely to be sustained as well. Businesses that have pricing power will continue to use it, while those that don’t will likely try to find ways to raise prices, nonetheless. That might be good news for investors, as it implies profits can be sustained. And since the Fed is in no hurry to start easing back on its supply of liquidity to the system, fears of rate hikes are premature, at least for now.