Dave, the plumber who saves us every six or so months when a leaking pipe, water heater, or toilet threatens to destroy our walls and ceilings, was here the other day. As usual he fixed the problem right away and charged us less than expected. We love this guy.
While he was working I asked him how business was going. He claimed to be swamped to the point of turning away jobs. I asked why he doesn’t hire more plumbers to leverage his client list. Because, he replied, there are no available plumbers: “If a plumber is unemployed today there’s a really good reason for it.” In other words the home maintenance part of the labor market is hot and getting hotter.
Today’s Wall Street Journal provides a broader confirmation of this anecdote:
NFIB survey shows businesses hiring more workers, but not as many as they’d like.
Call them labor-force participation trophies, but they are very well-deserved. With many Americans still sitting on the economic sidelines, workers are increasingly earning raises from small businesses that can’t find qualified applicants for all the available positions. That’s the message of the latest National Federation of Independent Business jobs report, due out later today.
The February survey of owners of small firms finds solid job creation, and historically high numbers of businesses lifting wages to attract and keep talent. Survey respondents reported a seasonally adjusted average employment increase per firm of 0.22 workers. NFIB Chief Economist William Dunkelberg calls it “a strong showing” and adds:
“Labor markets are very tight, for both skilled and unskilled workers. To address this problem, a net 22 percent plan to raise worker compensation, historically high. Thirty-one percent (unchanged) reported raising compensation to attract or retain employees, the highest since December 2000, the peak of the last expansion. Only an increase in the size of the labor force and an increase in the participation rate can provide relief from the impact of labor shortages. Firms will be hiring workers with less than the desired skill levels, forcing them to invest more in training.”
As of January for the economy as a whole, the percentage of American civilians aged 16 years or older who were either working or seeking work was just 62.7%. This remains near the Obama-era low of 62.3% reached in 2015 and represents dreary 1970s-style participation in the labor force.
Hence the trophies in the form of higher wages for the workers who are both able and willing to participate. The NFIB finds that 34% of all owners reported job openings they could not fill and 22% of owners cited the difficulty of finding qualified workers as their most important problem, exceeding the percentage citing taxes or the cost of regulation.
As business owners continue to seek new workers, the NFIB finds hiring plans strongest in construction, manufacturing, transportation and communication. Mr. Dunkelberg calls it “an exceptionally strong outlook for job creation. The availability of qualified workers will undoubtedly moderate actual job growth.”
This is obviously good news for workers who’ve seen their wages stagnate since the 1990s. But it also means “wage inflation” is apparently about to become an issue. Because the Fed ignores rising prices for financial assets (that is, things that benefit the big banks and their favored clients) while focusing intently on grocery store prices and wages, a sudden spike in hourly pay puts extreme pressure on the Fed to raise short-term rates and sell off the bonds it bought to force long rates down during the Great Recession. The result? Interest rates might rise faster than most now expect.
A good interest rate to track is the 10-year Treasury yield, since so many other rates, including 30-year mortgages, key off of it. Already it’s up by about 100 basis points since last September. Hotter than expected wage growth will accelerate the trend.
Spiking interest rates translates into soaring interest expense for virtually everyone from governments that have to borrow to fund ongoing deficits and roll over maturing debt to home buyers who were pricing in a 3.5% mortgage when they started looking and are now confronted with 4.5% or higher. Put another way, everyone who has to borrow money is suddenly a lot poorer. Poetic justice for sure, but very bad news for financial market stability.