May Job Openings and Labor Turnover Survey

KEY DATA: Openings: +171,000; Hiring: -52,000; Quits: +60,000

IN A NUTSHELL:  “Rising openings and increasing labor turnover is another sign that the labor market is improving rapidly.”

WHAT IT MEANS: Despite the robust June jobs report, skepticism about the strength of the labor market remains.  And the basis for that uncertainty is valid: Wages continue to rise minimally.  That more work needs to be done before firms are forced to start bidding for workers is clear, but that time may not be far off.  The monthly reading on job opening and labor turnover was a pretty good one.  Jobs openings jumped.  Since May 2013, they are up a nearly 20%.  Hiring has clearly not kept pace, in part because business leaders are not raising compensation so workers are not coming out of the woodworks to take the jobs.  But changes are in the air as the number of people quitting is rising.  Given all the uncertainty about the labor market, it takes a lot of guts to leave a job and since last May, there has been a nearly 15% increase in the number of people willingly leaving their jobs.

MARKETS AND FED POLICY IMPLICATIONS: The JOLTS data are my favorite non-payroll numbers and members of the Fed, including Fed Chair Yellen, also watch them closely.  I like the quits data the most as it really gets to the heart of the uncertainty that workers have been facing: The inability to get another job.  In this world, job security, as I have noted many times before, can be defined as “the ability to walk across the street and get another job”.  That is still not readily possible, but the rise in people quitting and the jump in openings provide the basis for my belief that turnover rates could start to increase rapidly over the next six months.  Businesses, though, don’t believe that is likely.  They still complain about a lack of qualified workers but refuse to raise offers.  I call that the Einstein Insanity Defense: They continue to do the same thing, not raising wages, and keep getting the same results, no qualified workers at the prevailing wage.  It is as if there is only one curve in the labor market: the demand curve.  Business demand workers and workers are supposed to appear magically.  But there is a supply curve as well and that means that wages need to rise to attract the needed workers.  We will see how long it takes for businesses to recognize that fact.  But when they do, wages will jump and those that were slow in seeing that happening, as well the Fed, will have to scramble to catch up.