The pace of hiring in the U.S. has slowed sharply in the spring, but it’s not because the economy has gotten weaker. It’s because the economy is stronger.
Eight years after the end of the Great Recession, the U.S. is finally close to full employment — the cherished economic ideal in which most people who want a full-time job can find one. Since 2010 the U.S. has created 16.3 million jobs to drive unemployment down to a 16-year low of 4.3%.
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Great news, but there’s a catch. Companies simply can’t continue to hire as much as they did a few years ago, even though demand for their products and services keep growing. Finding skilled employees and keeping them on payrolls has become a bigger and bigger challenge.
The growing shortage of suitable candidates helps explain why hiring has tapered off despite job openings that are near record highs.
The economy has added an average of just 121,000 new jobs in the past three months, the lowest rate since 2012. The number of job openings, on the other hand, stood at 5.7 million in March and an updated report on Tuesday is likely to show that openings remain sky high in April.
“After all you can’t hire new workers if there are no new workers to be had,” quipped Scott Anderson, chief economist at Bank of the West.
To be sure, there’s still a fair number of Americans who want a full-time job but can’t find one.
Some are stuck in part-time gigs and others have even given up looking, particularly those who’ve been out of the labor force several years. Companies tend to avoid hiring the long-term unemployed because of worries that their skills have become rusty or outdated in a fast-changing economy.
People who’ve lost their previous jobs within the last six months stand a much better chance of getting hired. The rate of unemployment for people out of work less than six months dropped to 3.3% in May — the lowest level in 47 years.
“An already tight labor market got tighter,” said Michael Gregory, deputy chief economist at BMO Capital Markets.
In some cases companies have sought to retrain job candidates who lack the necessary skills, but that doesn’t always work out, either.
A furniture maker in New England, for example, said some new workers quit within days of being hired, according to a recent Federal Reserve report. And firms in Ohio told the Fed it was hard to find qualified applicants for low-skilled manufacturing jobs and that “many newly hired workers prove to be unreliable.”
The growing shortage of labor, skilled or unskilled, is unlikely to ease soon, either.
The large and aging baby boom generation has hit retirement age, and the Trump White House has tightened immigration rules, among other things. Partly as a result, the labor force is only increasing about half as fast as companies are hiring.
By all accounts, such a tight labor market should have forced companies to boost worker pay much faster than they actually have. Hourly wages have risen just 2.5% in the past 12 months, well below the 3% to 4% gains that usually accrue when the economy is close to full employment.
Read:Why workers aren’t getting bigger paychecks despite sizzling jobs market
With wage inflation and other forms of price pressures still subdued, the Federal Reserve may have to rethink how many times it raises interest rates in 2017. The bank is still expected to raise rates in two weeks.
“Is the U.S. labor market too hot, too cold, or just right, for another quarter-point” increase in rates, Anderson asks.His answer: Just right.
The rest of the year is another story.
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