The state of the US labor market in 2 sentences from the Federal Reserve
Wage growth is coming, a skills gap is obvious, and the labor market is most definitely getting tighter.
This is the main takeaway from the Federal Reserve's latest Beige Book report, a collection of economic anecdotes from each of the Fed's 12 districts. Broadly, the Fed says that economic activity continues to expand across most regions, while the oil crash has pressured activity in the Minneapolis and Dallas regions.
But overall, the two emerging themes in the labor market, higher wages and a lack of good workers, are making themselves obvious.
Here's more detail from the Fed's report:
In most Districts, labor market conditions remained stable or continued to show modest improvement ... Layoffs in the manufacturing and energy sectors were reported in multiple Districts including Cleveland, Atlanta, Minneapolis, Kansas City, and Dallas. These reductions were primarily related to the decline in gas and oil prices and the resultant decline in upstream demand such as iron ore mining and steel manufacturing. In Chicago, skilled workers continue to be in high demand. Firms in many Districts, including Richmond, Atlanta, St. Louis, Kansas City, and Dallas, reported having difficulty finding skilled workers, especially in professional and business services and the IT sectors. The Richmond, Atlanta, and St. Louis Districts specifically noted an increasing incidence of voluntary turnover of employees.
This is a big deal.
Over the last several months, a number of things have been happening in the labor market.
- Job openings have been spiking.
- Wage gains have been just so-so, but are showing some signs of improvement.
- Initial jobless claims have been near 15-year lows.
- And while March saw a disappointing headline gain in jobs, net job additions over the last couple years have been way above what we've seen since 2000.
But now, as the labor market enters a more mature phase after the almost frantic pace of job gains seen in 2014, the kinds of problems that indicate real strength - or tightness - in the market are starting to make themselves obvious.
Markets are currently fixated on when the Fed first raises rates. Maybe in June, maybe in September, maybe next year. And many will tell you that it doesn't matter when the Fed first raises rates, but what happens after rates rise. Will markets sell off? Will the Fed raise rates quickly or at a moderate pace?
But what we do know is that the Fed has made clear it wants to see a tighter labor market and signs that inflation is coming before it moves.
And when employers say they need to pay workers more, and are having trouble finding the right ones, it looks like both of these things are right around the corner.