May Job Openings, Employment Trends Index and Small Business Economic Trends

Economics in a nutshell: “With openings at record highs, small businesses hiring and the labor market tightening further, the dam holding back wage gains is starting to crack.”

by Joel L. Naroff

Published Jun. 9, 2015, 1:27 p.m. ET

INDICATOR: April New Home Sales and March Housing Prices

KEY DATA: Openings: +267,000; Hires: -81,000/ ETI: +0.4%/ NFIB Optimism: +1.4 points; Hiring: +4 points

IN A NUTSHELL: "With openings at record highs, small businesses hiring and the labor market tightening further, the dam holding back wage gains is starting to crack."

WHAT IT MEANS: The FOMC meets next week and it will be fascinating to see what the members and Janet Yellen say about the labor market. If you look at the recent data, it appears that it is in really good shape. Last week's May employment report was strong and so far, this week's numbers support those data. The closely watched JOLTS report makes it clear that businesses are having massive problems finding workers. Job openings soared, reaching their highest level since the report was initiated in December 2000. The problems hiring reached across the skill level as the highest rates of openings were in professional and business services, accommodation and food services and education and health care. It looks labor shortages are driving the rising openings as hiring fell. Also, the number of people quitting their jobs has yet to accelerate, exacerbating the difficulties in finding qualified workers.

That the labor market is firming was supported by another rise in the Conference Board's Employment Trends Index. The solid gain in May allowed the index to resume decent growth after a slowdown during the early part of the year. Still, the Conference Board noted that the last six months point to more moderate job gains that we saw in 2014.

Small business optimism continues to improve as the National Federation of Independent Businesses Trends index rose in May. Firms are hiring, but they are finding it more and more difficult to attract qualified workers. More firms are increasing compensation, even if their plans to raise wages are not rising. That shows that the shortages are forcing even small firms to do what they don't want to do: Increase compensation.

MARKETS AND FED POLICY IMPLICATIONS: A surge in openings coupled with problems hiring is not a good combination if you are an employer but probably a great situation if you are an employee. Resistance to granting pay increases has been holding back even faster gains. But even the questionable average hourly wage number in the employment report is starting to accelerate, as are the workers compensation measure in the Employment Cost Index and the wage numbers in the productivity report. In other words, there is a growing body of data showing support for the view that wage acceleration has not only started, but is picking up steam. If firms are to fill all those openings, they will have to start attracting workers from other firms or occupations, and the best way to do that is by raising wage offers. This is one of the key factors that will determine when the FOMC raises rates and what Janet Yellen says next on this subject should provide some really good intel on the members' thinking. A rate hike is coming and it really looks like it will be in the next few months.