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KEY DATA: Openings: +149,000; Hires: -32,000; Layoffs: -47,000; Quits: -51,000/ Claims: unchanged
IN A NUTSHELL: “Firms are still willing to look for people but unwilling to hire them.”
WHAT IT MEANS: Last week’s strong employment report put to rest the idea that the job market was softening. The three-month average may be below the 2014 average, but it is similar to pace seen in 2012 and 2013. The feeling, though, is that we should be doing better. One reason I have proffered is that firms are simply unwilling to pay up to get the workers they need and today’s JOLTS report reinforced that view. Job openings rebounded from a surprising August decline and they are closing in on the July record high. Openings are sky-high in professional services, health care and restaurants and hotels. In contrast, construction firms are getting all the workers they want, but that may be due to truckers getting off the road and into the building trades. Despite the growing number of open requisitions for employees, hiring has not picked up at all this year. Firms are coping by limiting the number of terminations. The separations rate is well below the last expansion’s pace. Firms are also benefiting from the unwillingness of workers to leave their jobs. The quit rate is going absolutely nowhere.
A further indication of the tight labor market was the continued low level of jobless claims. This reinforces the data from the layoffs section of the JOLTS report.
MARKETS AND FED POLICY IMPLICATIONS: The Fed members are out in force and they are pretty much on the same page. The Tower of Economic Babble seems to be telling the world that it is ready to raise rates in December. Of course, we still have to get past the November jobs report that will be released on December 4th, but the likelihood that the data will be so weak that the Fed will punt once again is small. However, when you are talking about a group of policymakers that make data the driving force in decisions, you just never know. And that is why I am on this anti-data driven kick. Seriously, should one number really change anyone’s thinking at this point? Please! If you watch the data day in, day out, you know that crazy numbers happen. Thus, the idea that some Fed members are still saying that the data over the next four weeks will determine the decision at the December 15-16 FOMC meeting, makes me crazy. Tirades aside, the Fed is likely to begin the process of normalizing rates in December and it is better to start debating how fast rates will rise rather than when they will first be increased. Everyone agrees that a move at every meeting is out, at least for quite a while. My thought is that a 25 basis point increase every other meeting is just fine. With eight meetings a year, we are talking about just one percentage point over the year. If the economy cannot stand a rate increase of 8.33 basis points per month or 2 basis points per week, then there is no hope. So the second question becomes when will the Fed start moving every meeting? Actually, that is what we really should be discussing. It will happen when inflation is near or at its target. Given the tight labor markets and the extreme need to fill open positions, wage gains will have to accelerate. I think that occurs next year, so let me start the debate with the suggestion that by late 2016, the Fed will be switching into rate hike high gear – if you call a 25 basis point increase each meeting high gear.