Friday’s disappointing employment report might have been misunderstood. As Debbie reports below, payrolls rose only 151,000 m/m during August, the fourth weakest increase over the past 12 months. Excluding government, it rose just 126,000. However, there is mounting evidence that the problem isn’t a shortage of jobs, but rather a dearth of able-bodied and able-minded job seekers.
Consider the following:
(1) Unemployment pool shrinking. August’s unemployment rate was at 4.9% for the third month in a row (Fig. 1). That’s close to the previous two cyclical lows of 4.4% during May 2007 and 3.8% during April 2000.
During August, the 4.9% jobless rate reflected a short-term rate of just 3.7% and a long-term rate of 1.3%. The first component reflects workers who have been unemployed for less than 27 weeks, and was only slightly above May’s cyclical low of 3.5%, which is in line with the previous cyclical lows of 3.6% during March 2007 and 3.4% during October 2000. The latter component is down sharply from its record high of 4.4% during April 2010.
There are still 7.8 million people unemployed, comprising 5.8 million short-term and 2.0 million long-term unemployed (Fig. 2). But all three figures are down sharply from their cyclical peaks.
(2) Plenty of jobs available. In August’s consumer confidence survey, the Conference Board found that the percentage of respondents who said that jobs are plentiful rose to 26.0%, the highest since August 2007 (Fig. 3). The percentage saying that jobs are hard to get was 23.4%, near recent cyclical lows, and consistent with the cyclical low in the unemployment rate (Fig. 4).
(3) Record job openings. It’s actually somewhat surprising that nearly a quarter of respondents still say that jobs are hard to get given that job openings are at a record high. Perhaps many workers simply lack the skills required by the available jobs.
June’s JOLTS report showed that there were 5.6 million job openings. The ratio of the unemployed to job openings was down to 1.4 during June, near May’s 1.3, which was the lowest since April 2001, and down dramatically from the cyclical peak of 6.6 during July 2009 (Fig. 5). The NFIB monthly survey of small business owners found that during August the percentage with one or more job openings was 27.8%, the highest since October 2001, and that’s on a 12-month average basis (Fig. 6). The actual August reading was 30.0%.
(4) Unfilled positions hard to fill. NFIB’s August survey also reported the following litany of complaints by small business owners about the labor market: “Fifty-three percent reported hiring or trying to hire (down 3 points), but 46 percent reported few or no qualified applicants for the positions they were trying to fill. Fourteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem. This issue ranks third out of nine major issues listed. Twenty-six percent of all owners reported job openings they could not fill in the current period, down 3 points from, the highest reading in this recovery.”
(5) Lots of full-time jobs. The household survey conducted by the Bureau of Labor Statistics (along with the payroll survey), showed a seasonally adjusted employment gain of only 97,000 during August, but that followed a jump of 420,000 during July. August’s increase was led by a 409,000 jump in full-time employment, setting yet another record high (Fig. 7). That was partially offset by a 388,000 drop in part-time employment. (Note: Full- and part-time workers don’t add up to total employment because total employment is seasonally adjusted independently of full- and part-time workers.) The good news is that part-time now accounts for 17.9% of total employment, the lowest since November 2008.
(6) Earned Income Proxy remains near record. That’s all very exciting stuff. However, our Earned Income Proxy (EIP) edged down 0.1% m/m during August as the lackluster gain in payroll jobs and wages was more than offset by a drop in the workweek. However, our EIP remains near July’s record high, and is up 3.5% y/y. (See our Earned Income Proxy.)
(7) What will the Fed do? A frequent grammatical mistake is to treat the word “data” as a singular rather than a plural noun. Fed officials have frequently said that monetary policy is “data dependent.” I presume that means that they are monitoring a bunch of data rather than one data point.
While August’s weak payroll number suggests that the Fed should continue to postpone the next rate hike, it is only one number. The overwhelming evidence is that the labor market is very tight and that another 25bps hike won’t do any harm.
My advice to Yellen for the September meeting of the FOMC: Just do it, even if it risks hurting your buddy Hillary. (We all know you won’t keep your job if the Donald wins.)
Show that you have the guts to do at least one tiny rate hike per year. It will help your credibility, and then you can take the rest of this year off.
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.
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