The consensus from the Labor Department’s latest JOLTS report is job openings (graph yellow line) keep rising and employers are scrambling to fill them. January’s number of job openings rose 1.4 percent to 7.581 million that also showed a sharp upward revision to December which is now at 7.479 million vs an initial 7.335 million.
The hires data (blue line) in the JOLTS report also rose 1.5 percent or nearly 100,000 to 5.801 million. And the spread with openings continues to widen to a new record of 1.780 million, which means 1.780 million jobs have yet to be filled, according to the survey.
Year-on-year, openings are up 21.7 percent which dwarfs the 4.2 percent rise in hires, says Calculated Risk. One indication of inflationary risk that Federal Reserve policy makers watch closely is the quits data in this report, rising nearly 100,000 in January to 3.490 million. It is workers seeking higher pay moving from one employer to another, which is usually a sign better jobs are available.
Why is retail CPI inflation today just 2 percent, when it should normally be rising closer to the 3 percent average that prevailed through most of 2017, as I said in my last blog?
The University of Michigan sentiment survey gives some answers. The consumer sentiment index rose to 97.8 for the preliminary March reading which is above the consensus range. The expectations component, which sank sharply during the government shutdown in January, rose nearly 5 points to 89.2 for its best result since October. And current conditions look even better, up nearly 3 points at 111.2, their best level since before the December shutdown.
But inflation expectations, which the Federal Reserve watches very closely in this report, are still low. The year-ahead U of Michigan expectations reading is surprising, down 2 tenths to 2.4 percent though offset by a 2 tenths gain in the 5-year outlook to 2.5 percent.
This tells us consumers aren’t seeing many rising prices, and so continue to shop for discounts. Inflation expectations tend to be self-reinforcing, according to some recent research. It’s only when consumers see sharp price hikes that they begin to spend more, boosting prices further, as happened during the 1970s wage-price spiral that kicked inflation rates into double digits.
Yet inflation has been tame since the 1990s, and will probably continue as such, even with rising wages. The JOLTS report really tells us there just aren’t enough workers willing to work, qualified or unqualified. It’s a great place for working adults to be in.
It also means there are many working-age adults sitting out the recovery that left the workforce during the Great Recession and see no reason to return until earnings return to pre-recession levels. Workers’ average hourly earnings are at a nine-year high, but the recovery is in its tenth year, so the incomes of many hourly workers have yet to catch up to present living conditions.
Harlan Green © 2019
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