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New Data Points to Labor Shortages

Reports indicate that the labor market is tightening as businesses face difficulty filling their openings, says Morningstar's Bob Johnson.

New Data Points to Labor Shortages

Note to viewers: Bob Johnson is off and will not have a new Reading Indicators column this week.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. Our director of economic analysis, Bob Johnson, thinks that there's labor shortages throughout the U.S. economy. We're here to look at some data as to why he thinks that's the case.

Bob, thanks for joining me.

Bob Johnson: It's great to be here today.

Glaser: So, coming into 2016 one of your big economic themes was that we were going to start to see labor shortages and we've had some strong jobs numbers and a weak jobs number kind of thrown in there. We got some new data this week that you think confirms that we are in fact seeing some labor shortages.

Johnson: Absolutely. I mean, I think we got two reports this week that kind of spoke to that, the National Independent Small Business Association came out with their report and they have a labor section which showed things were tightening up. In addition, we got the Job Openings and Labor Turnover report from the Labor Department, which kind of complements last week's employment report. And again, both of those tend to show that the problem with any employment growth is more related to issues of finding people rather than businesses not looking for workers at all.

Glaser: Looking at that JOLTS report or the Job Openings report, what did it say in terms of the number of openings that have been added?

Johnson: Openings were about 5.6 million, and that's very, very near a high of the recovery and also the high back to 2000s. So, this 5.6 million openings is a really large number. I mean, to put it in perspective, hires are about 5.1 million right now according to this same report. And it's almost the other way around. It's usually where your hires are greater than your openings because you usually fill some things in a month or less and it's just pretty incredible that we've now had a sustained period where these openings have stayed above hiring because people just can't find enough.

And I tell you, the openings are very broad-based. This isn't like a bunch of restaurants and nothing else is showing any job growth. I mean, this is really very, very broad-based. The openings over the last year are up about 400,000 people, and so it's had some pretty healthy growth, but 100,000 of those might be from healthcare in halfway decent jobs and finance added 50,000 openings to the mix, which is a very high-paying sector and it's really tiny in terms of the number of people, to add 50,000 openings is kind of a big deal for that. Manufacturing this latest month added 37,000 new openings in spite of all we are hearing about manufacturing, and added over 100,000 in the last year. So, these openings are not trash openings, if you will.

Glaser: So, it's this broad-based problem, but we still hear about unemployment being elevated, particularly for people without high school diplomas or just high school diplomas. So, is it an education skill mismatch, or is it a geographic mismatch? Where is the problem here?

Johnson: Well, it's certainly a little bit of all of the above. We've certainly got a skill mismatch and we keep on hoping that businesses train more people to kind of get over that problem and certainly we've seen news out of JPMorgan and out of Starbucks that indicates they want to have more training programs and to bring up wages at the bottom end of the curve, not because it's mandated--because they are already, in many cases, above that--but because they figure in their business they, because of labor shortages, need to kind of boost that wage to get the best possible person. So, we're seeing that from two important leaders there in terms of JPMorgan and Starbucks.

So, we're seeing this in many areas where we've had these shortages, but now it's not everybody. Now, if you work up in a paper mill in Northern Wisconsin or something, and you're not willing to move out, certainly you're going to think the economy looks pretty bad. Geographically, if you want to stay where you are, you may have some issues. It's not so much of an issue of employers moving around, but employees--if you kind of want to stay where you are at, you could have issues. It's interesting, the South is not necessarily the largest component of the population in the United States, but it's 40%, 50% of the job openings. So, you're more likely to have good success if you're in the South than in the Northeast, where openings have been a little bit harder to come by despite some pretty high concentrations of population.

Glaser: You talked about higher wages there. It's something we've seen in the data. Would you expect to see more wage pressure to try to fill some of these gaps?

Johnson: Well, certainly one of the things that we look at, and that brings us to the National Federation of Independent Business' Small Business Survey, and in there they indicated that 24% of employers had actually had a wage increase in the last three months, and that's one of the highest percentages that we've seen in some time. And again that number was single digits at one point early on in the recovery, and that's a high number given it's a three-month lookback, not a full-year lookback, especially for a time of the year that isn't particularly known for wage increases. So, again, that 24% of them actually paid a higher wage is pretty interesting. What's more interesting is that starting out at the beginning of the quarter 15% of them thought they'd pay a higher wage. So, it's obvious that as people actually got into the market and had to hire people, they ended up paying up, if you will.

Glaser: And that report said that nearly half of small-business owners with openings couldn't find qualified workers?

Johnson: Yes. And that number has crept up over the last couple of years. We're near where we were--I think the highest mark was maybe a month or two ago at 48%. But again, we get asked again and again in our comments where is our proof that there's shortages. Well, half of small businesses say they can't fill their openings. It's mentioned in this particular report that it's the third-largest concern after regulation and taxes. The next biggest worry is finding qualified people. Now if that isn't some demonstration that there are clearly some labor issues going on here, I don't know what is.

Glaser: Bob, thanks for taking a look at this data with us today.

Johnson: Thank you.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.

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