Summary: After years of disappointment, a happy few retain their optimism about the US economy’s growth — including many of the Fed’s governors, hence their enthusiasm about raising interest rates. Here you’ll see one reason they’re excited, the sad reality behind it, and the logical but dark conclusion.
Business Insider said “Job openings rise to a record high“. Even more exciting is CNBC, who produces a truly meaningless headline: “JOLTS: 5.8 million job openings in April vs 5.7 million expected” (as if the number “expected” means anything, or the 1.7% difference is significant).
Josh Zumbrun at the WSJ wrote a more accurate analysis: “A Hiring Decline in April Points to Broader Labor Market Woes“, “Fewer people are getting hired despite a high number of job openings and few layoffs.” He describes the puzzle.
“A persistent puzzle in the data: employers report having a record number of job openings available but the hiring rate shows people are not actually being hired into those jobs. That puzzle remained in today’s report. The pace of hiring declined, while the number of jobs available at the end of April climbed to 5.8 million from 5.7 million.”
There is a simple explanation to this important puzzle. But first, see why the optimists are excited: the number of job openings has risen — and now exceeds job hires (from the JOLTS report)! Perhaps this means that the economy is starting to over-heat! We have labor shortages, so wages must be rising at an accelerating rate — a terrible thing called “wage inflation” (economists’ never speak of “profits inflation”).
But wages are not rising at an accelerating rate. See the graph of monthly changes in hourly wages for production and supervisory workers (the per cent change MoM SA). It’s volatile, like most of the sub-indexes of the employment report — but it is not rising as it would if labor was scarce. (There are always shortages of workers in specific fields, often those industries in bubbles).
A possible solution to the mystery
What’s happened during the past six years in the labor market? Technology and the internet. Advertising a job creates an “opening” (counted by the JOLTS report), and the cost of advertising a job opening has dropped to near zero. Companies troll for experienced and skilled people willing to work at low rates.
The bottom line: the job market is slowing…
…joining almost every other measure of the US economy. To make the condition of the labor markets easy to see, the Fed created the Labor Markets Conditions Index, based on 19 factors. It tells a clear story: the long expansion might be drawing to a close.
For More Information
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- Poorly prepared Boomers retiring means hard times for them and for America.
- The Fed sees years of slowing growth. Prepare for years of political turmoil.
- As boomers retire they create a drag on US GDP that will last for decades.
- May’s job report shows the beginning of the end for the recovery.
Two books about our slow-grow economy
Are we Doomed to Secular Stagnation? Limitations of Supply-Side Economic Policies by Uwe Petersen (2014) and the highly rated Secular Stagnation: Facts, Causes and Cures by editors Richard Baldwin and Coen Teulings (2014).