US job openings at record high; market is tightening
Productivity rises in Q2; labor costs soft
US job openings jumped to a record high in June, outpacing hiring, the latest indication that companies are having trouble finding qualified workers.
The monthly Job Openings and Labor Turnover Survey, or JOLTS, released by the Labor Department on Tuesday also underscored labor market strength that will likely encourage the Federal Reserve to continue tightening monetary policy despite benign inflation and concerns about consumer spending.
“Companies are running out of workers to hire to do the job or even train to do the work, and this is a ticking time bomb for economic growth,” said Chris Rupkey, chief economist at MUFG in New York. “Today’s JOLTS data bring a September meeting balance sheet unwind announcement a little closer to reality.” JOLTS, is one of the job market metrics on Fed Chair Janet Yellen’s so-called dashboard. Economists expect the US central bank will announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its next policy meeting in September.
Tame inflation and worries about consumer spending amid tepid wage growth and faltering motor vehicle sales, however, suggest the Fed will delay raising interest rates again until December. It has increased borrowing costs twice this year.
Job openings, a measure of labor demand, increased by 461,000 to a seasonally adjusted 6.2 million. That was the highest level since the data series started in December 2000 and pushed the job openings rate up two-tenths of a percentage point to a near one-year high of 4.0 percent.
The monthly increase in job openings was the largest since July 2015. The surge in job openings was almost broad-based. There were 179,000 additional vacancies in the professional and business services industries. The health care and social assistance sector had 125,000 more job openings and construction companies had an additional 62,000 unfilled positions. In June, job openings were concentrated in the Midwest and West regions.
The ratio of job openings to unemployment hit a 16-year high. Hiring was little changed at 5.4 million in June, leaving the hiring rate steady at 3.7 percent. The gap between job openings and hiring points to a skills mismatch, which was also corroborated by a separate report on Tuesday from the National Federation of Independent Business.
The NFIB survey showed job openings at a 16-year high in July. Small businesses cited a lack of skills as the main reason for the vacancies. Others also blamed “unreasonable” wage expectations, attitude, appearance as well as drug addiction for disqualification of job seekers.
Economists are optimistic that tightening labor market conditions will spur faster wage growth. Annual wage growth has struggled to break above 2.5 percent, contributing to inflation persistently running below the Fed’s 2 percent target.
“The JOLTS report continues what has been a reasonably strong run for the labor market data, and we expect continued improvement in the job market to keep upward pressure on wages,” said Daniel Silver, an economist at JPMorgan in New York. Other details of the JOLTS report were mixed. About 3.1 million Americans voluntarily quit their jobs in June, down from 3.2 million in May. As a result, the quits rate, which the Fed looks at as a measure of job market confidence, dipped to 2.1 percent from 2.2 percent in May.
Layoffs rose 28,000 to 1.7 million in June, lifting the layoffs rate one-tenth of a percentage point to 1.2 percent.
Productivity
US worker productivity rose more than expected in the second quarter as hours increased at their fastest pace in 1-1/2 years, keeping labor costs under control. The Labor Department said yesterday that nonfarm productivity, which measures hourly output per worker, increased at a 0.9 percent annualized rate in the April-June period. First-quarter productivity was revised to show it edging up at a 0.1 percent pace instead of being unchanged as previously reported.
Compared to the second quarter of 2016, productivity increased at a 1.2 percent rate, the strongest performance in two years. Economists had forecast productivity increasing at a 0.7 percent pace in the second quarter. With productivity rising, unit labor costs, the price of labor per single unit of output, increased at only a 0.6 percent pace in the second quarter after jumping at a 5.4 percent rate in the January-March period. Compared to the second quarter of 2016, unit labor costs fell at a 0.2 percent rate, pointing to muted inflation. Coming on the heels of a recent moderation in price pressures, the retreat in unit labor costs may worry Federal Reserve officials as they contemplate further monetary policy tightening.
Prices for US Treasuries were higher in midmorning trading while US stocks were lower. The dollar gained against a basket of currencies.
The government also revised productivity data going back to 2014, in line with recent revisions to gross domestic product figures. Those revisions showed productivity falling 0.1 percent in 2016, the first drop since 1982. Productivity increased at an average annual rate of 1.2 percent from 2007 to 2016, below its long-term rate of 2.1 percent from 1947 to 2016, indicating the economy’s potential rate of growth has declined.
Anemic productivity is bad news for President Donald Trump who has pledged to boost annual economic growth to 3.0 percent through tax cuts, infrastructure spending and a rollback of regulation. “To reattain 3 percent real GDP growth with the demographics the US is facing, productivity growth will have to exceed its long-run average growth rate of 2.1 percent, and we are far short of attaining such a pace,” said John Ryding, chief economist at RDQ Economics in New York. —Reuters