Johnson: Plenty of Jobs, Not Enough Workers

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. After disappointing jobs numbers last week, we got some new data. I'm here with Bob Johnson, he is our director of economic analysis, to see what it means.

Bob, thanks for joining me.

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

Glaser: So, after we had disappointing numbers for May in terms of jobs added, we had talked about if the underlying issue was, are there not enough workers, or not enough jobs out there. JOLTS data came out and job opening data came out this week. What did it show us?

Johnson: Well, it showed us that there is no shortage of jobs. What happened was we had 6.03 million job openings. That's a new high since they've been keeping records of this, which is only back to 2000, I have to admit. But still over those 17 years the number of openings we have right now is higher than it's ever been. So, clearly, there are a lot of openings out there that have not been filled across a wide variety of industries.

Glaser: When you look at the number of hires then, which is also in this report, does that kind of jibe with the lower numbers that we saw in May?

Johnson: Yes. The employment report from last Friday showed relatively low job growth. And lo and behold, the JOLTS, the Job Openings and Labor Turnover report, also showed that hires were relatively low at about 5 million. So, you can see that's running well below the number of openings. And you know what, that hire number is about the same as it was a year ago. So, it's going nowhere fast, while openings after a brief pause have begun to accelerate yet again.

Glaser: How about quits? Are workers feeling confident enough to leave their jobs to find the new one?

Johnson: Yeah. That's the third key factor in this report, this Job Openings and Labor Turnover, and we always look closely at the quits. And again, it shows a very similar picture to the hires in that the number is better than it was in general, between 2.2 million and 2.1 million over the last year. But it's just kind of bounced up and down between those two numbers. It isn't like people are quitting massively to go take better-paying jobs and there is no even trend with more quitting. So, people appear to be afraid to move, afraid to quit, afraid to take on a new position, because those quits numbers while higher than they were are still not what they've been in the past. And they certainly seem to be indicating a little bit of that fear factor is still there.

Glaser: What does the ratio look like between the number of unemployed workers out there and the jobs that are open? Are we seeing that looking pretty similar?

Johnson: Yeah, we are. Again, that's a number that's also at a record low. And what we do there, that's a calculation we make. We compare the number of people that are unemployed overall and by industry and compare that to the number of openings that are out there. And generally, in a healthy economy the openings run a little bit higher than the number of unemployed and that's the ideal situation. But what we've got right now is something entirely different. We've got a situation where the number of people unemployed in an industry are running under, well under the number of openings that are out there. So, everybody that's unemployed and wants a job in that industry wanted to, there is an opening for them. So, that's just kind of an amazing statistics. In fact, roughly, 7 out of 11 different industries show a ratio of under 1, which is frankly unheard of. And every other industry is below 2, with the exception of construction, which always runs a little bit higher.

Glaser: You painted a picture of some pretty serious labor shortages. Wouldn't you expect that to turn into higher wage though? That would seem like a pretty obvious way to get these positions filled.

Johnson: It does. And there are about three different factors operating here that's kind of keeping that wage number down, if you will. Certainly, one of them is age related in that as a lot of the shortages are due to baby boomer retirements. So, those people have tended in jobs for a long time, built up seniority. Now, oftentimes, the person that's hired to replace them comes in at a lower rate because they just don't have the seniority. And so, that's certainly one aspect, and sometimes baby boomer jobs are being split in two and de-skilled a little bit, and so, that brings the number down just a bit. So, you certainly got that age factor as one of the factors holding down wages.

We've certainly talked about different mix issues over time, which can be varied, where the restaurant and hotel workers are the faster growing sector and kind of hold things down, if you will, is an issue. We talked about geographic mobility being an issue. We've talked about discouraged employers. They are sitting out there and saying, well, if I pay my average employee $10 and I offer the new one $9, I kind of keep everything in line. But now if the going rate is $12, many employers are going, well, gee, my numbers don't work and that means they have to go back and give everybody else a raise. It's not just this one guy. I can't keep this as secret; they'll find out. And so, you've got a lot of businesses that are afraid to pay the going wage. And they are saying, you know what, I'll forego the growth rather than have all the headaches and maybe I can get a little bit more out of what I got right now.

Glaser: Do you think geographic mobility is a major factor here, that the jobs just aren't in the right places?

Johnson: Absolutely. I mean, I think, we've talked again and again about how much tech is driving a lot of what's going on in the economy, now, whether it's production, whether it's orders, whether it's employment. And certainly, many of those are in very, very high-cost areas. And to fill some of those jobs is really quite difficult. You can't fill an opening in the Bay Area with somebody that's coming out of the Midwest. They will just go into a sticker shock from the housing prices out there.

Glaser: Do you think that these will kind of roll off that we will higher wages at one point or could these trends persist for some time?

Johnson: Excellent question. We've had one or two situations where we've had these shortages for and they tend to build over time. Right now, it looks very tame, but I think that over time those wages will begin moving up and begin having a positive impact on the economy and workers' consumption.

Glaser: Higher wages could lead to inflation. If you are the Fed, if you're Janet Yellen next week having her meeting, do you expect that they will take data like this into account and deciding if we should have higher rates if this could cause inflation in the future?

Johnson: I think they will, and I think that they certainly--certainly, inflation has kind of ticked back a little bit here. Some of it's driven by gasoline, a lot of it by some of what's happening in commodities. And so, we've seen a little tick back in inflation. And I think they have to be careful. They don't want to squelch all wage growth. I think that they would probably want to see wage growth run up a little bit if they want to bring the overall inflation rate up around 2% or so. They may have a hard time doing that with wage growth as low as it is.

Glaser: Bob, thanks for sharing your thoughts on the jobs data today.

Johnson: Thank you.

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