There were several important reports on the U.S. economy released last week. First, the latest job openings and labor turnover survey (JOLTS) from the U.S. Department of Labor revealed that there were 10.073 million job openings in America in June (lagged release schedule).
That is a new all-time high but fortunately the growth rate in hires has also improved recently, a sign that some of the staff-filling challenges many firms have had are perhaps starting to ease. “Starting to ease,” though, does not mean “completely resolved,” and it is clear that there is still a long way to go before the supply and demand imbalances in the labor market tilt back in employers’ favor. In fact even if supply (job seekers) started to ramp up and grow at a rate of 250K per month faster than labor demand (openings), ceteris paribus, the labor market would still not be back “in balance” for roughly another year.
Further, there are over 1.3 million more job vacancies in this country than out-of-work Americans, based on the latest JOLTS data, and the gap is likely even wider currently since the number of openings has surely risen since June. There has also been an uptick in job-quitting this year, both broadly and on the sector level. Many of the labor market imbalances, however, are not uniform as some sectors appear to be having a much harder time matching job seekers with openings. Leisure and hospitality businesses, for instance, have found it particularly difficult to fill vacancies recently, likely in part because the typical wage in this arena is relatively low. This matters because with unemployment benefits remaining elevated in several regions of the country many job seekers probably feel emboldened to be extra picky with the positions they accept. This particular headwind, though, should abate in the months ahead as any lingering, pandemic-related emergency benefits finally expire. Congress could of course vote to extend or even increase the unemployment insurance boost, but even with the recent uptick in COVID cases such a move would likely face a handful of political obstacles.
One area of the economy very familiar with the recent labor market logjam is small business, as evidenced by owners surveyed by the NFIB in July. Fifty-seven percent of respondents, for instance, complained about there being “few or no” qualified applicants to the job openings they have tried to fill during the past three months. That matches the all-time high but a record percentage of owners also reported that they have raised worker compensation recently and/or have plans to do so in the months ahead. Clearly the upward pressure on wages is real, and unsurprisingly the industries that have the highest quit rates are seeing the fastest rates of average hourly earnings growth. At the same time, though, small business owners appear much more concerned with the quality of labor than the actual cost of labor at the moment (see below). This is not to suggest that rising wages are not a potential problem for small businesses but rather to highlight how strong the economic recovery in America has been, i.e. demand is solid enough that higher input costs can be passed on to customers with little to no pushback. However, general business and economic optimism cooled in July according to the NFIB survey, meaning some owners may be starting to grow concerned about just how long such favorable selling conditions can last.
Should it become more difficult to pass on rising labor costs then businesses will have to rely more on productivity to maintain profitability. For many firms this means investing in technology, and over the past year telecommuting has often (out of necessity) been where efforts were focused first. However, despite the popularity of such initiatives it remains to be seen whether workers actually are (in aggregate) more productive while working from home. In fact, since people often work longer (at least initially) when telecommuting versus in the office, productivity will simply as a side effect of how it is calculated be lower if the level of work completed is held constant. This could partially explain why headline productivity growth, albeit positive, has disappointed economists’ forecasts recently. These issues will also play a role in determining just how transitory 2021’s uptick in consumer inflation ultimately is (we will explore this in more detail later this month when the Fed’s preferred measure of household price pressures is released). Of course it is worth reiterating how lingering pandemic-related distortions and other temporary factors continue to add noise to almost every incoming data point, and more certainty on the economic outlook may therefore not be available until 2022 at the earliest.
What To Watch This Week:
- 3-Yr Note Settlement
- 10-Yr Note Settlement
- 30-Yr Bond Settlement
- Empire State Manufacturing Index 8:30 AM ET
- Retail Sales 8:30 AM ET
- Industrial Production 9:15 AM ET
- Business Inventories 10:00 AM ET
- Housing Market Index 10:00 AM ET
- Jerome Powell Speaks 1:30 PM ET
- MBA Mortgage Applications 7:00 AM ET
- Housing Starts and Permits 8:30 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 20-Yr Bond Auction 1:00 PM ET
- FOMC Minutes 2:00 PM ET
- Jobless Claims 8:30 AM ET
- Philadelphia Fed Manufacturing Index 8:30 AM ET
- E-Commerce Retail Sales 10:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- 2-Yr Note Announcement 11:00 AM ET
- 5-Yr Note Announcement 11:00 AM ET
- 7-Yr Note Announcement 11:00 AM ET
- 30-Yr TIPS Auction 1:00 PM ET
- Baker Hughes Rig Count 1:00 PM ET