KEY DATA: Openings: +228,000; Hires: +55,000; Layoffs: -27,000; Quits: +1,000

IN A NUTSHELL: “With job openings running well above hiring, we should see continued solid job gains in the future.”

WHAT IT MEANS: The August employment report was less than hoped for, though as I noted, about as good as could be expected given the outsized increases in June and July. The question going forward is whether there will be more strong reports or will we move back toward what most economists think is the trend of about 150,000 to 175,000. My guess is that the trend will be out a friend, but it could be toward the upper end of the range. The biggest reason for my optimism is that firms still have huge, and I mean huge, numbers of unfilled positions. The Bureau of Labor Statistic reported that job openings rose sharply in July and the rate of openings is at its record high. At the same time, the increase in hiring was not as great*. For sixteen of the last eighteen months, openings have grown more than hires, indicating that firms are having a massive problem filling positions. As that need for new workers grows, demand will continue to be solid. One big issue facing companies hiring is the relative unwillingness of workers to quit their jobs. The number of people quitting is still not near the level reached ten years ago. Firms are trying to deal with their inability to find new people by holding on to their workers as tightly as possible, so separations are relatively low.

MARKETS AND FED POLICY IMPLICATIONS: Headline numbers, when they are not given any context, can be meaningless. The headline August job growth number was precisely that. Yes, job gains in August were well below what we had seen in June and July, but those two months were aberrations and not sustainable. Today’s JOLTS report shows that the labor market remains tight. Indeed, the greatest impediment to hiring may be the low unemployment rate. There just is not that many people who are either available, meet qualifications, are not too old or too young (yes, there is age discrimination in this economy), or are willing to move to a new job given the wage offers. As long as firms don’t make offers that prospective employees cannot refuse, the number of job openings will continue to rise and likely outstrip hiring. That will increase the number of unfilled positions and ultimately put more upward pressure on wages. This relative lack of hiring is costing firms in many ways, including reducing productivity. Firms may think it is better to keep a position open than to pay up to attract more productive workers from another firm, but if you look at the collapse in productivity in this country, one of the explanations has to be that there just is not enough people working with the available capital. Interestingly, this implies that investing in labor-saving capital will not necessarily reduce payrolls – but it will raise productivity. But firms are failing to do that as well. It is more fun to merge or buy back stock than to spend money on machinery and equipment. That has to change if this economy is to grow more quickly.

*(Note: Changes in the number hired and job gains are not the same thing. Job gains are a net of hiring, firing, births and deaths of firms, etc. Hires are just hires. The difference between total hires and total separations, though, closely mirrors the monthly payroll change numbers.)