Following last Friday’s better than expected unemployment report for May, there was even more good news on the jobs market on Tuesday. The Labor Department reported that the number of US job openings rose to 5.4 million in April, a new record and up from 5.2 million in March. The data comes from the DOL’s monthly Job Openings & Labor Turnover Survey (JOLTS).
Here’s an interesting stat: The number of unemployed job seekers per open job fell to only 1.6 in April, the lowest since 2007. That means, on average, less than two people are applying for each open job. Obviously more than two people apply for certain jobs (1.6 is just the average), but this is a sign that the slack in the labor markets is disappearing.
And another interesting stat from the report: The share of businesses saying they could not fill open positions increased to 29% in April, which was the highest since April 2006. The most frequently cited reason for this is the applicants are not qualified for the jobs offered.
In another encouraging sign, about 2.7 million people voluntarily quit their jobs in April. They don’t typically do that unless they believe there’s a better (and often higher paying) job out there they can get quickly.
The JOLTS report is one of the indicators being closely watched by Federal Reserve policymakers as they contemplate raising interest rates this year. The US central bank has kept the short-term lending rate near zero since December 2008.
“On balance, we read the April JOLTS data as suggesting labor market momentum remains intact in the second quarter and labor market slack continues to diminish,” said Jesse Hurwitz, an economist at Barclays in New York.
Barclays happens to be one of the more optimistic forecasters with regard to the economy rebounding in the 2Q. In addition to the JOLTS report, they cite last Friday’s better than expected jobs report for May, a surge in auto sales last month and a rise in business inventories as signs that the 2Q will not be as disappointing as some expect – following the very poor showing (-0.7%) in the 1Q. Barclays expects growth of 2.9% for the 2Q while some other analysts are lowering their earlier estimates.
Tightening labor market conditions were corroborated by a separate report from the National Federation of Independent Business that showed confidence among small businesses rising to a five-month high in May.
Startups Are Making a Comeback in America
The Great Recession and the financial crisis that ensued took a heavy toll on entrepreneurs and startup activity in general. New business creation plunged from 2009 to 2014 when it bottomed and commenced a strong comeback, as measured by the Kauffman Foundation Index of Startup Activity.
Even though politicians like to praise small business as the job-creating machine, research shows that it’s the startups that expand employment the most. The Kauffman Index of Startup Activity had the biggest increase in two decades in the last year, reflecting the return of entrepreneurs to the marketplace. [Incidentally, Austin, TX is ranked #1 nationally for startup activity this year.]
During the Great Recession, startup activity plunged even though a lot of people started new businesses because they had lost their jobs and had no other choice. That has changed. Kauffman reports that in late 2014, about 80% of startups were driven by opportunities as opposed to necessity. That’s nearly back to the level seen in the decade prior to the recession.
The Kauffman report points out that US household wealth rose to a record $89.2 trillion by the end of 2014, and because most entrepreneurs use their own resources to finance startups, those gains have helped.
Here are a few other highlights from the 52-page Kauffman report for the last year:
- The biggest gains in startups have been among men, who made up 63% of new entrepreneurs.
- The US population is aging, and so are startups. The biggest gains have been among older entrepreneurs, with 55- to 64-year-olds making up 26% of the new enterprises.
- Immigrants are far more likely to start businesses than native-born Americans. Immigrants started 28.5% of new businesses, which is more than double the number from 1997.
- Younger people have been hampered by student debt and an inability to get resources for businesses.
Overall, this is all very good news, but as the chart above illustrates, we are nowhere near back to where we were in 2008.