Could the worker shortage be getting worse?

NFIB Chief Economist William Dunkelberg reports:

Forty-five percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, up 4 points from December. The share of owners with unfilled job openings far exceeds the 49-year historical average of 23 percent although it is 6 percentage points lower than the record high of 51 percent last reached in May. Thirty-six percent have openings for skilled workers (up 1 point) and 17 percent have openings for unskilled labor (up 1 point).

The overall economy has been cooling lately, a phenomenon people usually associate with fewer job opportunities. But Mr. Dunkelberg says the labor force participation rate, which remains below pre-Covid levels, continues to create a worker shortage. He adds:

The labor market continues to be a big challenge for small business owners. The media is focusing on layoffs at high-tech firms but those have little impact on labor supply for small firms.

Specifically it is a lack of labor supply that is still forcing many owners to lift wages. The NFIB economist reports:

Seasonally adjusted, a net 46 percent reported raising compensation, up 2 points from December, and just 4 points below the 49-year record high set in January last year. A net 22 percent plan to raise compensation in the next three months, down 5 points from December. Far more owners are having to increase compensation to compete than are planning to add to that expense with new hires or increased compensation . . . with labor demand remaining strong (as has consumer spending), firms must maintain competitive compensation to retain workers and . . . fill open critical positions. As long as consumers spend, firms will find it profitable to hire.

Beyond small firms, the remarkable and somewhat puzzling resilience of the broader U.S. labor market showed up in another report this week, even if much of Wall Street doesn’t want to believe it. The Journal’s Sam Goldfarb reports:

Investors are not convinced by the latest data on the labor market.

Data from the Job Openings and Labor Turnover Survey on Wednesday showed that job openings totaled 11 million in December. That was up from 10.4 million in November and above the 10.3 million consensus estimate, according to BMO Capital Markets.

Over the past year or so, Federal Reserve officials have consistently highlighted JOLTS data as an important measure of labor market tightness, which in turn is seen as a critical driver of inflation.

Investors, though, have only sporadically seemed to care much about the report, which got less attention before the pandemic.

Taken at face value, Wednesday’s report from the Bureau of Labor Statistics suggests that demand for workers remains extremely high—calling into question whether wage growth and inflation can continue to moderate.

For clues on where the labor market goes next, small firms may be a particularly interesting area of study. The Journal’s Dion Rabouin reported last week:

Small companies have been responsible for all of the net job growth in the U.S. since the onset of the Covid-19 pandemic and account for almost four out of five available job openings, according to a Wall Street Journal review of labor data and an analysis by Jefferies.

Since February 2020, small establishments—locations with fewer than 250 employees—have hired 3.67 million more people than have been laid off or who quit. Larger establishments—those with 250 employees or more—have cut a net 800,000 jobs during that time, despite some rapid pandemic-era expansions in such sectors as tech.

Good luck, small business owners. We’re all counting on you.

James Freeman is the co-author of “The Cost: Trump, China and American Revival."

This story has been published from a wire agency feed without modifications to the text