Labor Market Continues to Tighten
Initial claims for unemployment insurance fell again in the latest week. The Department of Labor reported that claims fell by 2,000 to 236,000 for the week ended May 6. The four-week average came in at 243,500, an increase of 500 from the prior period. The four-week average has been below 300,000, a level associated with strong jobs growth, since February 2015. The level of new claims over the past several months is the lowest since 1973. Measured as a share of payroll employment, initial claims are at the second lowest on record.
Earlier this week, the Bureau of Labor Statistics reported that there were 5.743 million open positions in the U.S. economy as of March. Among those 5.743 million, the private sector had 5.207 million openings. That level of openings puts the opening rate, openings divided by the sum of employed plus openings, at 4.0 percent, just slightly below the record 4.3 percent in July 2015.
Among the industries shown, health care had the highest openings rate at 5.2 percent, followed by professional and business services, and other services, both at 5.1 percent. The lowest job openings rates were in mining and logging (1.7 percent) and private educational services (2.2 percent).
Another sign of the perceived strength of the labor market is the rising level and percentage of workers quitting jobs, presumably for better ones. About 3.1 million employees quit their jobs in March with 2.94 million of those coming from the private sector. That translates into a quits rate, the number of quits divided by total employment, at 2.1 percent overall and 2.4 percent for the private sector. The total quits rate is just slightly below the all-time high of 2.2 percent while the 2.4 percent rate for the private sector is at a high for the current cycle, though still below the 2.6 percent peak in 2005.
Among the private industries, the highest quits rate were in accommodation and food services (4.4 percent), followed by leisure and hospitality (4.23 percent), and retail (3.2 percent). The lowest quit rates were in finance and insurance (1.1 percent), durable-goods manufacturing (1.2 percent), wholesale trade (1.2 percent), and private education (1.3 percent). Even lower quit rates were seen in the public sector where just 0.5 percent of Federal employees quit, and in state and local education where the quit rate was 0.7 percent.
The tight labor market is likely to continue to put upward pressure on wages. Higher wages should help support consumer spending but may result in some combination of higher prices and/or lower profit margins if business can’t find ways of boosting productivity.
Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
