Daily Market Update: US jobs market shows further signs of tightening
Following on from last Friday’s April employment report, yesterday’s data gave us a further glimpse into the performance of the US jobs market.
The Job Openings and Turnover Survey (JOLTS) data showed a larger than expected pickup in the number of job openings (i.e. vacancies) which reached 5.757 million in March (the JOLTS data are not as timely as payrolls). This was a good deal stronger than the 5.45m expected, represented the fourth increase in a row, and took vacancies to within touching distance of the cycle high reached last July. A worthwhile way to make use of the JOLTS data is to compare the number of vacancies (a proxy for demand for workers) with the numbers unemployed (a proxy for the supply of workers). This measure of labour market balance edged lower (i.e. better) in March to stand at 1.38 unemployed workers for every vacancy – the lowest level recorded in 15 years. For context, that’s down from a crisis high of 6.65 in July 2009. Separately, the NFIB survey of small business optimism increased by more than expected in April, from 92.6 to 93.6. One notable aspect of the survey was the component that relates to the percentage of firms with positions they are having difficulty in filling. This jumped to 29% which ties for the high of this cycle and is among the highest readings in the survey’s 40-year history.
To be sure, both the JOLTS and NFIB are second- as opposed to first-tier datasets. However, we think the observations above offer interesting and important points of corroborating evidence regarding the performance of the US jobs market. In particular, we read these latest signals as being very much consistent with a labour market which is getting progressively tighter. And while that tightness has not, yet at least, translated into a strong acceleration in wage and cost growth, these indications are telling us that we should not be at all surprised if stronger labour cost pressures emerge in the period ahead. In turn, the erosion of spare capacity which has resulted from normalisation of the jobs market means that the case for a further normalisation of US interest rate policy continues to build.
In the UK, the trade balance figures revealed that the trade deficit was narrower than expected in March at £3.8bn, following a downwardly revised £4.3bn in February. A large trade deficit is one factor which serves to heighten the economic risks surrounding a potential Brexit. Indeed, despite the better than expected outturn in March, the Q1 trade balance represents the highest quarterly trade deficit since 2008. Movements in the major currencies over the last 24 hours have been very limited, with little net change in EUR/GBP, EUR/USD, or cable, which are currently trading at around £0.789, $1.139, and $1.443 respectively.