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Strong Demand in Jobs Data May Falter: Danielle DiMartino Booth

Published 09/12/2017, 06:21 am
Updated 09/12/2017, 08:14 am
© Bloomberg. Employment Guide LLC literature sits on a table as a job seeker signs into a National Career Fairs event in Dearborn, Michigan, U.S., on Tuesday, Dec. 5, 2017. The U.S. Department of Labor is scheduled to release initial jobless claims figures on December 7.

© Bloomberg. Employment Guide LLC literature sits on a table as a job seeker signs into a National Career Fairs event in Dearborn, Michigan, U.S., on Tuesday, Dec. 5, 2017. The U.S. Department of Labor is scheduled to release initial jobless claims figures on December 7.

(Bloomberg View) -- The unemployment data for November released by the Labor Department on Friday left little doubt there's tremendous demand for labor in certain sectors. Still, there is a question as to the durability of that demand.

Look at the positive seasonal outliers in the numbers for the construction, manufacturing, temporary and transportation sectors. Anecdotes from areas of the country ravaged by this year’s natural disasters suggest supplies remain tight and delivery times prolonged. It makes sense that the industries that hired more than they usually do at this time of the year are being forced to bring on extra workers to satisfy this anomalous surge in demand.

There is better news over the horizon: Young companies are popping up at the fastest rate in more than a decade. As The Liscio Report, an economic newsletter, noted, the most recent data find that the yearly growth in employing establishments is up the past two quarters. In the year through June, the gain was 2.5 percent, the fastest pace since the end of 2006.

“This upturn began in 2010, so it’s hardly a neonate,” the report said. “It’s a good portent for future job growth.”

Indeed, the steady labor-force participation rate in November’s data suggests the baby boomers leaving the workforce are being offset by fresh workers pouring in. Small-business surveys also suggest there is momentum backing the trend of new business formation.

The biggest challenge, for small and big companies alike, remains sourcing skilled workers. The Federal Reserve’s Beige Book, the National Federation of Independent Business and the Conference Board surveys all indicate skilled workers retain the upper hand.

The competition for these workers between big and small firms, though, shows how much deep pockets matter. The Liscio Report went on to observe, “Another thing about the big boys and girls: they pay better.”

In companies that employ 1,000 or more employees, the weekly wage paid was 161 percent of the average of all employers through March of this year, the most recent data available. Smaller outfits, however, those that employ fewer than 50 workers, paid between 15 percent and 25 percent below the national average.

Aggregate demand, it would seem, is the missing element, the key to companies of all sizes being able to shoulder the expense of bringing more employees onto payrolls. At this late stage in the cycle, with the unemployment rate at a 17-year low, it stands to reason that the pace of hiring falters as firms struggle to compete for labor.

But is this solely a dearth of capable workers? At 62.7 percent, the labor-force participation rate is down from 62.9 percent at the start of the year and stuck in a tight range that’s held since January 2014. Could hiring at the slowest pace since 2010 be indicative of a deeper malaise in the jobs market?

The economists at Bank of America Merrill Lynch (NYSE:BAC) are among many endeavoring to square the circle: “The lack of wage growth at the aggregate level despite the declines in the unemployment rate and strong job gains remains a mystery. One possible explanation is that structural factors such as unfavorable demographics and industry-specific dynamics are playing a bigger role than the cyclical factors.”

The recent news of large mergers and acquisitions, especially in the pharmaceutical sector, and the spread of retail’s pain to many large chain restaurants hint that 2018 will be a make or break year for the labor market. The latest layoff figures validate these emerging trends.

Workers, for their part, may also be signaling the best times in the labor market have come and gone. After some of the healthiest readings on record, the latest University of Michigan survey found a four-point decline in those expecting the unemployment rate to fall over the course of the next year. Echoing the sentiment in the November jobs report was the fresh record high in the number of people not in the labor force and a concomitant drop in the number of those who want a job.

Few care to recognize the sheer persistence of the current recovery, the third longest in U.S. history accompanied by some of the least affordable housing on record. Cracks in the foundations of household finances suggest demand may yet falter. Even without the gauntlet of automation claiming inevitable victims, it is likely we will continue to see a bifurcated workforce, characterized by a great divide between those with in-demand skills and those considered expendable.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Danielle DiMartino Booth, a former adviser to the president of the Dallas Fed, is the author of "Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America," and founder of Money Strong LLC.

© Bloomberg. Employment Guide LLC literature sits on a table as a job seeker signs into a National Career Fairs event in Dearborn, Michigan, U.S., on Tuesday, Dec. 5, 2017. The U.S. Department of Labor is scheduled to release initial jobless claims figures on December 7.

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