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“Hard-to-Fill” with the “Hard-to-Find”


The American labor force is changing, and this could impact the actions of the Fed.  While most investors study the monthly Jobs Report on the first Friday of each month, most economists study the monthly JOLTS report.  This stands for Job Openings and Labor Turnover Survey.

While the number of Job Openings ticked down slightly in April, reflecting the lousy Jobs Report in March, it is still important to realize that the number of Job Openings is higher now than before the 2008/9 “crash.”  In fact, 3.4% of all jobs are currently open and unfilled.  The National Federation of Independent Business (NFIB) reports that 26.7% of their Job Openings are “hard-to-fill.”  This is up from 10% during the 2008/9 “crash.”  Appropriately trained workers are hard-to-find!

All this increases the possibility of the Fed raising interest rates, because there are two types of inflation, and the Fed can only fight one of them.  But, they can preempt the other type!

There is “demand-pull” inflation, which occurs when the economy is over-heating.  The Fed can fight this by raising interest rates or tightening loan availability.  The other type of inflation is “cost-push” inflation, which usually happens when there are shortages in labor or materials.  This is a much more pernicious type of inflation.  The Fed has no authority to restrict wage increases or oil prices, for example.  It can only depress the overall economy, which they are loathe to do, usually waiting too long.

I still believe the Fed will remain loathe to depress the overall economy and the job recovery by raising rates this year . . . even if they should.

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