KEY DATA: Ads: up 164,600

IN A NUTSHELL:  “With job openings rising as unemployment is falling, is there really any doubt that the labor market is tightening?”

WHAT IT MEANS: Businesses are out there looking for workers all over the place.  The Conference Board’s Help Wanted Online Index jumped sharply in August.  The rise in labor demand was spread across the nation as only five states had lower levels of ads.  Seventeen of the top twenty metropolitan areas reported gains.  Philadelphia was not one of them, though.  Which jobs are seeing an increase in demand?  All of them!  Every occupation category posted a rise in want ads.  All of this is created some real labor shortages, not just a tightening in the labor market.  The ratio of the number unemployed to the number of job openings is a measure of labor availability.  Over the past three months, that ratio has averaged 1.93 workers per opening.  To put that in perspective, from May 2005, when the data were first released, to December 2007, when the expansion ended, the ratio averaged 1.95.  In other words, the current measure of availability is lower than what it generally was during a significant portion of the previous expansion.  Looking at occupations, computer and mathematical science, healthcare practitioners, management and business and financial operations all have ratios less than one.  In other words, they have already hit labor shortage status.

MARKETS AND FED POLICY IMPLICATIONS:  We still have to wait for Friday’s report to see how much, if any, the labor market tightened in August.  Regardless, most of the labor market tightness indicators are flashing red.  So, why are we not yet seeing any pressure on wages?  My argument, which I have made a number of times in the past, is simple:  Business leaders have not had to worry about compensation or attraction and retention issues for so long that they don’t believe they have to do anything but pick the perfect job candidate and pay the person what they want to pay them.  Well, Bob Dylan said it best: “The times, they are a-changin’”.  Maybe the best way to end this piece is to quote the lyrics, which when it comes to the labor market may be the clearest warning:

Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.

(Copyright © 1963, 1964 by Warner Bros. Inc.; renewed 1991, 1992 by Special Rider Music)