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Friday, September 9, 2016

Barry Ritholtz - try paying people more


Ritholtz - try paying people more. Despite all the blather you read on proven Russian propaganda website Zerohedge, the US actually looks pretty good:

But looking at job openings only provides half of the equation; the other half is the number of unemployed who are seeking work. By looking at this ratio, we can get a rough idea of the balance between labor supply and employer demand. When the ratio is high, there is lots of supply and that acts as a natural cap on wage increases. When the ratio is low, it means demand is catching up with supply. That suggests that price increases in the form of wage gains could be in the offing.

The chart below shows the ratio between these two numbers:



This chart is revealing. As of yesterday’s Jolts data, the ratio is closing in on 1 to 1. This is the lowest since January 2001.

I find it difficult to look at this chart and not see both a robust labor market and an increasing likelihood of rising wages. Ed Yardeni, writing before the latest Jolts numbers, observed that “August’s consumer confidence survey found the percentage of respondents who said that jobs are plentiful rose to 26.0%, the highest since August 2007. The percentage saying that jobs are hard to get was 23.4%, near recent cyclical lows.”

All of which raises an interesting question about why there are few signs of pay increases so far.

I have a simple theory about this: Employers are both wary and a little bit spoiled. They are wary because they don’t know how long low interest rates will hold down the cost of capital; many businesses have been prudently running lean, keeping expenses and overhead in check. It isn’t a surprise that we still see lingering signs of post-credit-crisis stress.

They are also a little spoiled, because so many workers were desperate for jobs for so long and weren’t in a position to bargain for higher pay. That period seems to be ending. The low ratio of job seekers to openings suggests that if employers want to hire -- and keep their existing employees -- they might have to increase wages sooner rather than later.

For the economy as a whole, this is a potentially positive development.

But no, you guys go ahead and puke the S&P 500. I want another 20% one-week win from shorting $VIX futures.

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