Tuesday, May 8, 2018

Jobs nirvana

The economy isn't booming, but labor market fundamentals have never been so good.

Chart #1

The BLS today reported that April job openings were the highest ever recorded (see Chart #1). The current business cycle expansion has added 10 million net new private sector jobs to the economy since late 2007, yet businesses are looking to hire another 6.55 million. Impressive.

Chart #2

The unemployment rate has fallen to a mere 3.9%, and there are only 6.4 million people actively looking for work, according to the BLS. If there is a problem it is the apparent inability of those looking for work to qualify for or accept the jobs being offered. (see Chart #2) Geographical mismatches are one overlooked but likely culprit: the WSJ noted the other day that a growing number of cities around the country are paying people to relocate there because they have a shortage of able-bodied workers. And with businesses enjoying peak earnings these days, it would not be surprising for many to sweeten their salary offerings in order to fill jobs. What's not to like?

Chart #3

As a percent of the workforce, layoffs are now down to their lowest level ever, as shown in Chart #3. Never before has job security been so solid.

Chart #4

Small businesses are where by far the most new jobs are created, and the owners of those businesses have rarely been so optimistic about the future, as Chart #4 shows.

Chart #5

As Chart #5 shows, real disposable personal income per capita is at an all-time high of $39.5K. That is up 10% from the end of 2007 (i.e., just before the Great Recession hit), and it is just about double what it was 38 years ago, in 1980. Granted, the pace of gains in the past decade has been only about 1% per annum, which is disappointing compared to the 2.1% per annum gains of the 1980-2007 period. But we are making progress and the future looks bright.

Capital today is relatively abundant, thanks to years of growth, rising profits, and lower corporate income taxes. An abundance of capital is an unqualified boon for labor, because when capital is abundant labor sooner or later becomes scarce. This means that the price of labor is bound to rise further, and that should take the form of higher real wages and salaries, plus more job opportunities as businesses seek to ramp up investment. 

UPDATE (5/10/18): First-time claims for unemployment continue to decline. No one ever would have predicted such low levels. The last time they were this low was in 1969, when the total number of jobs was less than half of what it is today:

Chart #6


Rich said...

The biggest risk is the instability of the potus.

Soaring Eagle said...

Rich, you have that 100% backward - the Politicians are the biggest risk!

Give me a CEO anytime!

Benjamin Cole said...

Scott Grannis often offers a refreshingly optimistic view of the US economy.

I will never criticize another person's optimism. Without optimism we would not get out of bed in the morning, start a business begin a marriage or do anything worthwhile.

And perhaps the nattering nabobs of negativism have center stage too often.

Johnny Bee Dawg said...

A remarkable upgrade from the last guy. Economy will keep improving as long as he's President and keeps his campaign promises of destroying Obama's legacy: individual mandate, TPP, Paris Climate Accord, Iran nuke deal. Tax & Regulation cuts, plus North Korean disarming. And now addressing China cheating and intelectual property theft. Added a record number of conservative Federal judges in his first year, and he saved the Supreme Court.

Most effective and promise-keeping President of my lifetime. Minority unemployment at lowest levels in US history. Record high job openings. Small biz confidence thru the roof.

Imagine an outsider making all those accomplishments with the entire political establishment of the world against him.

I hope this kind of instability continues. Sidelines cash could pour in and push up my holdings.

randy said...

In succession, I read Johnny's comment (respectfully, shaking my head), and then happened to watch this Atlantic video - unrelated to Trump - questioning should I be afraid, which is a general reflection on situational anxiety. Talk about correlation. Anyway, who doesn't like Jeffrey Wright?


Scott Grannis said...

Johnny: your comment reminds me of an op-ed I read somewhere that was titled something like "I hate everything about Trump except all of his policies."

ckhajavi said...

Scott - isn’t possible that those individuals who aren’t participating in the labor force by now aren’t likely coming back even if wages start to accelerate? I’m concerned the unemployment rate just optically is going to keep moving lower / no increase in participation rate and hence there is potentially less labor slack than people think and the fed is forced to keep moving aggressively despite subdued overall inflation. We really need productivity to move higher and trumps anti immigrant policies combined with weakish labor force growth suggest the new normal growth rate is likely to sustain which is what the out years in yield curve are suggesting