May 26, 2022

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High vacancy rates in the US, resignations likely to fuel wage inflation

High vacancy rates in the US, resignations likely to fuel wage inflation
  • Job vacancies increased from 205,000 to 11.5 million in March
  • Employment drops from 95,000 to 6.7 million
  • Smoking cessation cases rose 152 thousand to 4.5 million

WASHINGTON (Reuters) – U.S. job opportunities rose to a record in March as labor shortages persisted, suggesting employers can continue to raise wages and help keep inflation uncomfortably high.

The Department of Labor’s Employment Opportunity and Employment Turnover Survey, or JOLTS report, also showed on Tuesday that 4.5 million people left their jobs voluntarily, underscoring rising wage pressures. The government reported last week that compensation for American workers had its largest increase in more than three decades in the first quarter. Read more

“For the economy, this signals another strong jobs report on Friday, and for workers, it means continued strong wage increases, especially for those who change jobs,” said Robert Frick, a corporate economist at Navy Federal Credit Union in Vienna, Virginia. “It is likely that the situation will continue well into this year as the Fed’s efforts to cool the labor market probably won’t gain momentum for several months.”

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Jobs, a measure of labor demand, rose by 205,000 to 11.5 million on the last day of March. The second consecutive monthly increase lifted job openings to the highest level since the series began in 2000. The retail sector led the rise, with 155,000 additional job openings. Manufacturers of long-term goods reported 50,000 job openings.

But job opportunities fell by 69,000 in the transportation, warehousing and utilities industry. State and local government education had 43,000 fewer job openings, while job opportunities in the federal government decreased by 20,000.

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Job opportunities increased in the South but decreased in the Northeast, Midwest, and West. Economists polled by Reuters had expected 11 million vacancies.

The employment gap, which Goldman Sachs argues is a better measure of labor market tightness, widened to 5.6 million from 5.08 million, an all-time high of 3.4% of the workforce, up 0.3 percentage points from February.

According to Goldman Sachs, narrowing the gap by 2.5 million would be enough to slow the rapid pace of wage growth.

tremors

JOLTS data is closely watched by the Federal Reserve, which has adopted a tough stance on monetary policy while battling high inflation, with annual consumer prices rising at rates last seen 40 years ago.

The US central bank is expected to raise interest rates by half a percentage point on Wednesday, and is likely to start reducing its asset holdings soon. The Fed raised its policy rate by 25 basis points in March.

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury rates were mostly higher.

“Traditionally, the Fed has focused on unemployment as a measure of the number of workers who are not finding jobs,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey. “In today’s environment, the Federal Reserve is focusing more on the number of companies that cannot find workers. The Fed’s policy goal in the near term is to slow overall spending enough to reduce excess demand for labor.”

The vacancy rate jumped to 7.1%. That was up from 7.0% in February and in line with a December high. The vacancy rate increased in organizations with 50 to 999 employees but decreased in companies with fewer than 50 employees.

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Employment fell by 95,000 jobs to 6.7 million in March. Modest increases in manufacturing, professional and business services, entertainment and hospitality were offset by declines in financial activities, education, health services, government, commerce, transportation, and utilities.

There are now 70% more jobs available than new hires. There were 1.92 standard jobs for every unemployed person in March.

“The continued difficulty for employers to fill jobs will push wages higher and motivate employers to automate processes or find other efficiencies to engage with smaller employees,” said Sophia Kurobekij, chief economist at Moody’s Analytics in West Chester, Pennsylvania.

“These challenges will only increase as more baby boomers leave the workforce. Companies will open operations in parts of the country with more workers available or at least rely more on remote workers who reside in areas with better demographics.”

With jobs galore, workers are quitting in droves. Smoking cessation cases increased by 152 thousand, bringing the total to a record 4.5 million. They were concentrated in the professional and commercial services industry, where quits increased by 88,000. In the construction sector, quitting increased by 69,000. The number of smoking cessation increased in the South and West.

The smoking cessation rate climbed back to an all-time high of 3.0% after hitting a late 2021 run of 2.9% in February. Policy makers and economists view the take-off rate as a measure of labor market confidence. A higher take-off rate indicates that wage inflation is likely to continue accumulating as companies scramble for workers.

Layoffs increased in March but remained at low levels. The layoff rate held steady at 0.9% for the third consecutive month.

(Covering) Lucia Mutikani Editing by Paul Simao

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