KEY DATA: Openings: +118,000; Hires: -198,000; Quits: -36,000

IN A NUTSHELL: “Hiring may be slowing, but it is not because the need for workers is declining.”

WHAT IT MEANS: We have had two consecutive disappointing payroll numbers and it is unclear if that is due to a lack of demand or a lack of supply. The April Job Openings, Layoffs and Terminations (JOLTS) report provides some insight into the situation. Firms are simply not bringing on workers nearly as rapidly as their need for new employees is growing. Job openings expanded solidly in April and are now back at their record highs, even as hiring slowed. Trade, transportation and utility companies had large increases in unfilled positions. Manufacturing firms hired more but still couldn’t meet their growing needs. There were a variety of other sectors, including finance, information, health care and education that couldn’t meet the growing demand for workers, but hiring in most of those areas fell. That suggests firms couldn’t find the workers they wanted. In contrast, openings in professional and business services fell sharply, as did hiring. This sector may be softening.

One of the key measures in this report is the quits rate. It indicates the willingness of workers to leave their jobs. The number and rate of quitting eased in April. While the rate is nearing historic highs, it still has a little way to go and the ups and downs in this number points to continued uncertainty on the part of workers as to the strength of the labor market.

 MARKETS AND FED POLICY IMPLICATIONS: The hand wringing over the May jobs report maybe misplaced. Yes, payroll increases are slowing, but it doesn’t look as if it is because the demand for new hires is dropping. Indeed, it looks like the need for workers is rising but for whatever reasons, firms are just not hiring. It may be because prospective employees don’t have the skills, or it could be because firms are unwilling to pay the price to attract the needed people. Most likely it is a combination of the two and that is important in understanding the dynamics of the market and the meaning of the jobs numbers. The slower rate of job creation may not be due to a slowing economy given the rise in job openings. Firms will either have to start paying more or figure out a way to raise productivity. For the past few years, firms have not done a good job of increasing worker efficiency, so it might be time for CEOs to start rethinking their strategies. Piling on more responsibilities and cutting back or limiting compensation gains doesn’t seem to be cutting it. Will they learn that lesson? Got me. As for the Fed, and especially Chair Yellen, this report reinforces her belief that the labor market is “close to eliminating the slack that has weighed on the labor market since the recession”. It’s hard to argue that there is slack in the market when we are at record highs for job openings.