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Higher Than Expected Job Openings Data Indicates Employment “Match Up” Imbalance

Today’s higher than expected job openings report (10.9 million openings, up from 10.2 million in June) and comments from Fed Governor Bullard highlight the dilemma facing policy makers. The economy is still about 5 million jobs short of pre pandemic levels. The Fed’s policy objectives are full employment and low inflation. The Fed has been willing to allow inflation to “run hot” (temporarily) while pursuing full employment. There continues to be a mismatch in demand. Example: there are 3.5 million openings in the hospitality sector but less than 1.5 million unemployed whose last job was in that sector. The pandemic’s societal effects have notably included a “Great Reassessment” by much of America’s workforce. Resignations are over 13% higher than pre-pandemic levels. Yesterday’s NY Fed Labor Market Survey indicated workers are expecting higher wages and feel they have leverage as labor shortages hit certain industries. So maybe the Fed’s continued easy money policies are limited in their effect (another “new normal”). Pouring money into the system will not solve these demand imbalances. Quantitative easing and low interest rates will not retrain workers. St Louis Fed Bank President made that point today as he advocated for tapering bond purchases “this year” and ending those purchases “by the first half of next year”. He indicated that the employment challenge is now “getting the workers matched up” and not creating demand. Meanwhile, major companies (Walmart, McDonalds, etc.) continue to increase wages hoping to attract and retain workers. This is of course inflationary and not transitory. The 10 year T is at 1.34% with a closely watched auction of new 10 year bonds scheduled for this afternoon. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners