Tags: labor | market | jobs | slow

Policy Psychology Slows Down Labor-Market Improvement

Tuesday, 07 August 2012 01:06 PM

INDICATOR: June Job Openings Report and July Employment Trends Index

KEY DATA: JOLTS: up 105,000; Employment Trends Index: 108.1 (up 0.4 point)

IN A NUTSHELL: “The underlying fundamentals of the labor market are improving, but not at a rapid pace.”

WHAT IT MEANS: Last Friday’s payroll numbers were a pleasant surprise but we need to see better gains ahead if we are going to get the unemployment rate down. I like to look at some of the lesser-known reports that indicate where the fundamentals of the labor market are trending.

Two of them are the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) and the Conference Board’s Employment Trends Index. In June, private-sector job openings rose a solid 3.5 percent. Since June 2011, available positions are up nearly 17 percent, which should have led to really good payroll increases. However, hiring actually slowed in June, an indication that firms may be willing to leave some jobs unfilled until the uncertainty of the election and the "fiscal cliff" are clarified. A moderation in terminations supports that conclusion. The rise in the Employment Trends Index also points to a strengthening in the labor market. The index rebounded from a drop in June and is up over nearly 6 percent during the past year. While it didn’t quite get back to where it was in May, the level is still the second highest since August 2008.

MARKETS AND FED POLICY IMPLICATIONS: The labor market is slowly, but steadily, improving despite all the uncertainty created by the European financial problems, the election and the fiscal cliff. That makes the mediocre job gains over the past few months more disconcerting. The lack of a follow-through on hiring after a strong couple of months early this year is not entirely due to real economic trends. Otherwise, we would not be seeing the underlying labor-market indicators moving upward.

It has to do with psychology and that is where the policy makers come in. In Europe, the European Central Bank has to do a lot more than talking loudly. It has to come out with the big stick. In the United States, the unthinkable has to happen: Politicians have to compromise as no one in Washington has the “true” answer to the fiscal and economic issues facing the country. I suspect that the ECB will act before Congress does and that does not bode well for a rebound in job gains for the rest of the year. But these data argue that there is no reason to think the job-payroll increase posted in July cannot be duplicated in the months to come.

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Tuesday, 07 August 2012 01:06 PM
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