by Ralph Cole, CFA
Director, Equity Strategy and Portfolio Management
“Signs, Signs everywhere there are [help wanted] Signs,” is how the song goes. It’s the first Friday of the month, and that means the monthly payroll report is released by the Bureau of Labor & Statistics. The report showed that payrolls increased by 559,000 in May, and the unemployment rate decreased to 5.8 percent. The report did not meet the expectations of 650,000, and labor participation rates dropped slightly.
The payroll report is notoriously hard to predict, so we wouldn’t put much credence in any disappointment with these numbers. The economy is still 7.6 million jobs short of the peak prior to the pandemic, and at the current rate of gains we won’t hit that peak again until mid-2022. This leaves the labor market not too hot, and not too cold with regards to the Fed’s tightening monetary policy.
One area that we are seeing a dramatic shortage in is the fast-food industry. Some reports are that restaurants are operating with 20 percent fewer workers than they would prefer. The ability to source workers has become a differentiating factor in the restaurant and retail industries currently. We don’t expect this to last forever, but these areas will remain under pressure as long as additional and extended unemployment benefits remain in place. While some choose to remain on the sidelines, those that are not eligible for unemployment benefits have a real opportunity. For the first time in memory, getting a summer job for students should be easy, which is not something I remember from growing up.
As a matter of fact, the most recent JOLTS data (Job Opening and Labor Turnover Survey) hit an all-time high of 8.1 million job openings. That’s right, there are more job openings than people looking for jobs. Obviously, not all jobs are in the right regions, nor does everyone have the right skills for current openings, but something is going on here, and it feels like the pendulum is swinging in favor of labor over capital for the first time in a long time.
Despite record low levels in unemployment in 2019, wage growth remained well contained. This dynamic is good for businesses (capital), and not optimal for workers (labor). That dynamic is currently in flux. Workers in certain industries are able to demand higher wages, at the expense of corporate profits. This is obviously inflationary if companies have the ability to pass on these wages in the form of higher prices.
Week in Review and our Takeaways for the Week
• Moderate job growth continues to be a positive tailwind for the economy
• Markets responded positively to the jobs environment with yields dropping and stocks rising for the week