The Big Picture
Updated: 02-Jul-15 14:09 ET
A Conundrum in Employment Trends
It goes almost without question that the Fed wants to raise rates and lift off of the zero bound. We know this because almost every FOMC speech over the past several months has signaled that economic trends warrant a near term rate hike. After the latest employment data, we have to question why the Fed is in so much of a hurry to raise rates.
There was a lot of optimism heading into the June employment report. Trends in the initial claims level had fallen to 15-year lows as layoff activities virtually halted. Consumer demand surged in May, and businesses would need to increase output in order to satiate continued growth in buying behavior. Meanwhile, businesses reported the most unfilled job openings since at least December 2000. Given these conditions, we expected to see businesses significantly add to their payrolls.
Instead of a big increase, however, payroll growth was substandard and gains in the previous months were revised lower.
One theory that gets bantered around is that the quality and skillset of the unemployed labor force is so poor that businesses are unable find suitable candidates to fill their open jobs. Job growth cannot accelerate, but not from a lack of wanting.
If this theory were true, then businesses would need to offer higher wages to attract or keep current talent. Yet, wages in June were flat on a month-to-month basis. Businesses were able to add more than 200,000 jobs without offering even the slightest bit of an increase in income.
Despite businesses claiming they have open jobs to fill, the reality is that businesses are clearly content with their current staffing. Otherwise there would have been an acceleration in either in hiring, wages, or both.
Unfortunately, the lack of hiring growth is putting a psychological damper on those currently unemployed. Workers exited the labor force in droves in June, which pushed the labor force participation rate down to its lowest point since the late 1970s.
The longer a worker remains unemployed, the more likely their skills really do regress. That makes them much harder to employ at a later date, when businesses may actually want to expand.
(Editor's note: the next installment of The Big Picture will be posted on Friday, July 17)
There was a lot of optimism heading into the June employment report. Trends in the initial claims level had fallen to 15-year lows as layoff activities virtually halted. Consumer demand surged in May, and businesses would need to increase output in order to satiate continued growth in buying behavior. Meanwhile, businesses reported the most unfilled job openings since at least December 2000. Given these conditions, we expected to see businesses significantly add to their payrolls.
Instead of a big increase, however, payroll growth was substandard and gains in the previous months were revised lower.
One theory that gets bantered around is that the quality and skillset of the unemployed labor force is so poor that businesses are unable find suitable candidates to fill their open jobs. Job growth cannot accelerate, but not from a lack of wanting.
If this theory were true, then businesses would need to offer higher wages to attract or keep current talent. Yet, wages in June were flat on a month-to-month basis. Businesses were able to add more than 200,000 jobs without offering even the slightest bit of an increase in income.
Despite businesses claiming they have open jobs to fill, the reality is that businesses are clearly content with their current staffing. Otherwise there would have been an acceleration in either in hiring, wages, or both.
Unfortunately, the lack of hiring growth is putting a psychological damper on those currently unemployed. Workers exited the labor force in droves in June, which pushed the labor force participation rate down to its lowest point since the late 1970s.
The longer a worker remains unemployed, the more likely their skills really do regress. That makes them much harder to employ at a later date, when businesses may actually want to expand.
(Editor's note: the next installment of The Big Picture will be posted on Friday, July 17)
