Three “Data” Items today:
#1: With Jessica focused on today’s Beige Book release, I (Nick) will pinch hit on the Job Openings and Labor Turnover Survey, also out today. The July “Openings” print of 10.9 million positions got most of the headlines because that is 2.2 million higher than the total number of unemployed Americans in July (8.7 million). The idea that there are more Openings than unemployed workers strikes many as a sign the US labor market is somehow “broken”:
- Perhaps potential workers are staying on the sidelines because of enhanced unemployment benefits (now expired, more on that in a minute).
- Or perhaps employers are posting jobs that simply cannot be filled due a mismatch between their requirements (e.g., wage and education expectations) and what is available in the market.
The historical truth of the matter is that Openings routinely exceeded total US unemployed workers before the pandemic, as the following chart shows. The blue line is the ratio of Openings/unemployed; above 1.0x (the dark line across the chart), represents more openings than unemployed and, below 1.0x, fewer. The US labor market had a ratio of +1.0x openings/unemployed for +2 years (2018, 2019 and early 2020). We’re simply back to those levels now (1.26x in July 2021).
Now, one can reasonably ask why the openings/unemployed ratio went over 1.0x in the late 2010s when, as this next chart shows, it had never even breached 0.8x until 2017. Cyclical peaks in labor market activity came with basically 70-80 job postings for every 100 unemployed workers. That was the “old normal”. The new normal is around 120 postings for every 100 unemployed. There are several reasons for the change. We would single out the growth of industries with higher levels of transient workers (e.g., leisure and hospitality) and the societal shift to intellectual capital which encourages employers to leave job postings up in the hopes of finding fresh talent.
Takeaway: we see this month’s record Openings number as a sign the US labor market is looking much more like its pre-pandemic self than the unemployment data indicates, and that’s a macro positive. The late 2010’s labor market was the healthiest period for US employment since the late 1960s, and high levels of job postings were one positive backdrop. Yes, the August Jobs Report was disappointing, but as long as employers have the appetite to hire (and they clearly do) employment growth should rebound in the months ahead.
#2: We’ve had questions from the press and clients about how this week’s end of enhanced unemployment and other pandemic-related benefit programs will affect the US economy. This is an important topic since, as we’ve been documenting, American economic momentum has clearly been slipping this quarter. The number of people affected: 7.5 million lose their benefits entirely this month and another 3 million lose the $300/week UI supplement.
We do not see this as a problem for the national US economy, but rather for specific urban areas where unemployment remains high. Specifically:
- New York City: 10.2 pct unemployment (July), 406,000 unemployed
- Los Angeles: 10.2 pct unemployment, 521,000 unemployed
- Chicago: 8.0 pct unemployment, 296,000 unemployed
- Houston: 6.8 pct unemployment, 234,000 unemployed
- Philadelphia: 9.5 pct unemployment, 66,000 unemployed
- San Diego: 6.9 pct unemployment, 106,000 unemployed
- San Francisco: 5.8 pct unemployment, 145,000 unemployed
- Total unemployed in these 7 cities: 1.8 million, or 20 percent of total US unemployment despite the fact that they only account for 6.6 percent of the US population.
Takeaway: this month’s cutoff of enhanced unemployment benefits coincides with what should be a “return to the office” period in large American urban centers, but the former is certain while the latter is less so. This is why we track urban office occupancy so closely. We’ll need to see “RTO” pick up in the months ahead to have confidence that urban employment, which flywheels off weekday office occupancy, can also rebound. If RTO lags, so will urban employment gains. The only bright spot is that this is a local, not national, economic issue based on the numbers we’ve shown you today.
#3: A quick look at August’s mutual and exchange traded money flow data, courtesy of the Investment Company Institute (link below):
- US fund investors added $11.5 billion to their holdings of US equity products last month, their first net add since May (+$8.3 bn) and after 2 months of redemptions (June: -$4.1 bn, July -$4.6 bn).
- Money flows into non-US equity products have been more consistent this year (every month positive), with August continuing the trend at +$17.7 bn.
- Fixed income funds also saw a nice bounce back of investor interest in August, with +$51.9 bn of inflows after just +$32.3 bn in July.
- Commodity funds (mostly physical gold) experienced outflows in August, to the tune of -$1.5 bn. Money flows have been choppy over the last few months for this asset class, ranging from +$5.6 bn in May to -$1.7 bn in July.
Takeaway: August’s US equity fund inflows shows US retail investors and smaller institutions remain positive on domestic stocks. Last month’s inflows into this asset class more than fully replace the capital redeemed in June and July. We have not seen this sort of bullishness on the part of fund investors in many, many years. Yes, that may look and sound like a “sell” signal, but without a specific catalyst it’s not a standalone point. Still, if you’re looking for general reasons to be a little more cautious with US equity allocations (a stance we have recently said was prudent), then you can add this to the list.
ICI Money Flows: https://www.ici.org/research/stats/weekly-combined