Stage Is Set for Higher Wage Growth

Roland Czerniawski: The Job Openings and Labor Turnover Survey is an important metric that can help us understand the underlying conditions in the jobs market, and it is commonly used by the Fed to measure the level of labor-market tightness. Today, we'll look at the trends in these numbers since 2001.

The chart consists of three main categories. Job openings are represented by the blue line, new hires are shown in green, and voluntary quits are in dark red. All three metrics are measured in thousands of workers and are seasonally adjusted.

This data is highly sensitive to the business cycle, and we can see that in the early 2000s, all three measures collapsed during the recession. But it was followed by a swift and nearly full recovery. Then, the next recession in 2008 was much more severe for the labor market, and the subsequent recovery has been painfully slow. In early 2014, a breakthrough occurred, and the level of job openings took off, followed by nice improvements in new hires. The quits metric accelerated, too, but not nearly as much. Quits are especially indicative of labor-market strength, as workers tend to leave their jobs more often when the economy improves in order to pursue better opportunities.

The chart tells us that employers' appetite for hiring has improved dramatically over the past 12 months and that, despite the rapid acceleration in the number of workers they've already hired, there are still plenty of new openings that are waiting to be filled. This could be indicative of a labor-scarcity issue, which means that it is becoming increasingly more difficult to hire new skilled workers as the job market improves and the unemployment rate ticks down. Going forward, as employers continue to deplete the pool of available workers, the labor scarcity will become a more prominent theme, especially in labor-intensive industries. As a result, higher wage growth in the U.S. seems almost inevitable in the years ahead.