Recent indicators point to higher wages and an increase in job openings, while an uptick in tax collections led to a smaller-than-expected federal budget deficit.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We had a couple of pieces of news this week that showed that the recovery is still on track. I'm here with Bob Johnson--he's our director of economic analysis--for a closer look at these.
Bob, thanks for joining me.
Bob Johnson: Great to be here today.
Glaser: Let's start with the small-business-confidence survey. I know this is one that you always look at. What was the headline number there and what does it tell us?
Johnson: We were up at 96.9. That's up about 1.7 points from the previous month, so we've kind of started the trail back up. We've been between 95 and 98 for the past year, and we had a nice rally in November, December, and even a little bit into January. Then, we fell back a little bit. Now, with the April report, we seem back on track again. I hope we can break through the 100 level.
Glaser: These surveys often tell us a lot about what's happening right now, but maybe less about what's going to happen in the future. What, if anything, did you get out of this survey about what we could expect going forward?
Johnson: I think the biggest thing I look at is the wage-intention part of the survey. A lot of the labor things are very interesting and very reliable. Those are what I tend to focus on. Some of the other items get a little bit complicated and aren't as predictive, but one that I love to look at is compensation. And in terms of actual real-world increases, the number [of businesses] raising comp rates was up at 23%--up 1% from the previous month. Even the plan comp was at 14%. That always runs lower; it was also up 1% month to month. So, that was some great news on the wage front that maybe our continuing build in labor shortages continues to work its way through the system.
Glaser: And were those small-business owners having trouble finding workers in the month?
Johnson: Yeah. We had one of the biggest increases, month to month, that we have seen in some time, and we're kind of back to near the highest levels we've had at this recovery. Hard-to-fill jobs--that is, where they couldn't find somebody or it's very, very hard to find somebody--moved from 24% to 27%. So, certainly, if you're a worker, that's good news for you; if you're a small-business owner, maybe not so much.
<TRANSCRIPT>
Glaser: Let's look at another labor indicator, the [Job Openings and Labor Turnover Survey] report from the Department of Labor. First off, what exactly is this report and why do you pay attention to it versus other labor indicators?
Johnson: I love using the JOLTS report and have for some time. It's a great insight into the labor markets, and it kind of helps validate the trends that you see in the regular employment report. Maybe there was something wrong; the number of job openings remains high or something. So, we use this as a double-check against the main employment report. And it measures a slightly different time period, too, which gives us a little bit of a factor of what's going on. And certainly, one reason why we love to look at job openings is because until you have an opening, you're not going to have a job. So, it tends to be more predictive than anything else. We really do like looking at it. The openings last month were 5.14 million, and now they're down at 4.99 million. So, we've come back in just a little bit, but anything around the 5-million level is still excellent.
Glaser: And what does that look like compared with last year?
Johnson: That's up about 19% from a year ago. So, again, we love look at numbers year over year, and certainly that number is still strong at 19% year-over-year growth in openings. And it's interesting, though, that hires aren't changed by nearly as much as the number of openings, indicating that labor mismatch that we've talked about for so long and why we continue to expect wages to move higher because of this scarcity factor. We certainly didn't see it particularly in last month's labor-market report, but we think this is certainly an indicator that wages are moving higher.
Glaser: And then what's the ratio between the number of unemployed people and the number of openings?
Johnson: You go back to the last recession and, at the time, there were 1.77 unemployed people per job opening. Interestingly now--and we're not near the end of this recovery yet--we are at 1.72, and lower is better. And certainly to be at the 1.72 level, which is better than the last time we were at a peak, indicates a pretty good labor market, which is great news.
Glaser: Last week, we got an update on the federal budget deficit. Anything surprise you there?
Johnson: Well, the number was surprisingly good. We kind of hoped it might be. The deficit clearly shrank about $22 billion, year over year, which is pretty good in and of itself, but what was really neat about it was that it was about $40 billion to $50 billion better than the government had previously estimated.
Glaser: So, is this a story of spending being kept down through sequestration or is it more of a tax-revenue story?
Johnson: Well, throughout the whole year and in the projections, there were continued cost savings and low spending levels. And I think that's still pretty much true. The excitement this time around was that April is a huge month for tax collections, and the tax collections were surprisingly strong, especially relative to expectations. Maybe that whole $40 billion to $50 billion worth [came from those collections]. Almost all of that came in what they call nonwithheld taxes--people paying taxes on their capital gains. They mail in a check with their income tax form on April 15. Those numbers were unusually strong. For a couple of years, they had been very weak because when they changed the tax laws, a lot of people rushed to take their capital gains to beat the higher tax rate. And then we had a couple of years where nothing much happened in that category, so they kind of budgeted it that way. Then, lo and behold, this year it came way back up.
Glaser: So, how does this change the projections for the full year, then, in terms of what the budget deficit will look like?
Johnson: I think the previous thoughts were about $480 billion. That's kind of the official estimate. That's about the same as it was the prior year in 2014; but now it looks like maybe we'll do considerably better, maybe in the $430-billion range, which would represent at least a couple of tenths of a percentage improvement in the ratio to GDP, which will now likely be somewhere down in the 2.5% or less range. Remember that we got as high as 10%. And on average, it's usually around 3%. So, we are doing even better than average.
Glaser: Then, from a big-picture perspective, what does the shrinking deficit mean for the U.S. economy?
Johnson: Certainly, there have been a lot of worries about the fiscal health of the U.S. You remember all the scares we had about the deficit and the debt limit and all of the fights. Well, that hard work apparently has somehow managed to pay off. We've really made a huge effort at reducing that deficit, and it's likely to remain under very good control all the way through 2020. Then, the baby boomers, as they retire and take medical care, begin to hurt the numbers a little bit.
Glaser: Bob, I appreciate your take on these pieces of data this week.
Johnson: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
