Em­ploy­ment pic­ture ap­pears to be bright­en­ing

Daily Local News (West Chester, PA) - - MARKETPLACE - Joel Naroff Colum­nist Joel L. Naroff is pres­i­dent and chief econ­o­mist of Naroff Eco­nomic Ad­vi­sors. He can be reached at 215-497-9050 or joel@narof­fe­co­nomics. com. On the Web: www. narof­fe­co­nomics.com.

INDICATOR: >> Sep­tem­ber Lay­off No­tices and Weekly Job­less Claims

KEY DATA: >> Lay­offs (Over Month): +37.7 per­cent; Over Year: -24.7 per­cent/ Claims: -5,000

IN A NUTSHELL: >> “If the Sep­tem­ber jobs re­port is lack­ing, the lack of avail­able work­ers may be the ma­jor rea­son.”

WHAT IT MEANS: >> To­mor­row is Em­ploy­ment Fri­day and Thurs­day’s data point to a tight­en­ing la­bor mar­ket. Whether that shows up in the Sep­tem­ber data is an­other story, but re­gard­less, there is ev­ery rea­son to think we are close to or at full em­ploy­ment. First, lay­offs are slow­ing. Yes, Chal­lenger, Gray and Christ­mas re­ported that no­tices were up in Sep­tem­ber from the Au­gust level. But there is no way to sea­son­ally ad­just th­ese data as the an­nounce­ments are largely ran­dom. What we do see is that third quar­ter lay­off no­tices were down from sec­ond quar­ter as well as from 2015 lev­els. Im­por­tantly, the en­ergy sec­tor, where nearly a quar­ter of the no­tices have orig­i­nated, is start­ing to sta­bi­lize. With oil prices break­ing $50 per bar­rel, that trend should con­tinue. I ex­pect the last quar­ter of the year to show an even bet­ter im­prove­ment from 2015.

A sec­ond in­di­ca­tion of how tight a mar­ket firms are deal­ing with comes from the con­tin­ued de­cline in un­em­ploy­ment claims. We are at record lows, given the size of the work­force, as the in­abil­ity to find qual­i­fied work­ers is forc­ing firms to do al­most ev­ery­thing (ex­cept is ap­pears, rais­ing wages) to hold on to their cur­rent em­ploy­ees.

MAR­KETS AND FED POL­ICY IMPLICATIONS: >> Fri­day’s em­ploy­ment num­bers have the po­ten­tial to cre­ate a lot of con­fu­sion. First, it is to­tally un­clear what should be con­sid­ered a strong num­ber. Many econ­o­mists are com­ing to the be­lief that given the low un­em­ploy­ment rate, job gains above 150,000 would be re­ally good, while re­ally strong would be above 200,000. That seems odd since we have av­er­aged about 200,000 per month for the past five years. But if firms can­not find qual­i­fied work­ers and/or are un­will­ing to pay up to get them, hir­ing will be slug­gish. Gone are the days that you just ad­ver­tise an open­ing and presto, a sur­feit of qual­i­fied ap­pli­cants show up at your door (or your in­box). While HR heads un­der­stand that re­al­ity, CEOs and CFOs don’t seem to want to ac­cept it. They still ask why should they pay for new work­ers. Duh, be­cause you can­not get qual­ity work­ers th­ese days with­out get­ting them to change jobs and they will not do that un­less there is a clear fi­nan­cial ad­van­tage to move.

That said, given the sur­pris­ingly soft pri­vate sec­tor em­ploy­ment in­crease in Au­gust, we could see busi­nesses adding close to 200,000 new po­si­tions. That would be a great num­ber, no mat­ter what the head­line says. As for the un­em­ploy­ment rate, it’s a toss-up whether there is a de­cline to 4.8 per­cent or the rate re­mains at 4.9 per­cent. The un­em­ploy­ment rate nor­mally falls slowly when we are at or be­low full em­ploy­ment, as fewer po­si­tions are filled but dis­cour­aged work­ers come back into the mar­ket. In­deed, it is not un­usual for it to rise in any given month if the la­bor force has one of its pe­ri­odic surges. As I like to say, the eco­nomic re­al­ity is in de­tails, so fo­cus on the fac­tors that drove the head­line num­bers.

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