Exciting But Fake News About Our Strong Economy

Jun. 07, 2018 5:16 PM ET
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Portfolio Strategy, Long Only, Long-Term Horizon

Contributor Since 2013

Larry Kummer has 37 years experience in the finance industry in a variety of roles. From 1994 to 2013 he was at UBS, the last 15 years as a senior portfolio manager and Vice President of Investments. Now retired, he had most of the major licenses at FINA, plus those for commodities and insurance.  His articles are widely reposted. Those about economics & finance appear at Roubini’s Economonitor, Investing.com, OilPrice.com, Wolf Street, and (of course) Seeking Alpha. Those about climate change appear at websites such as Climate Etc (of eminent climate scientist Judith Curry). Those about geopolitics have been posted at Martin van Creveld’s website and elsewhere. See his articles about the 2007-08 crash here: http://fabiusmaximus.com/financial-crisis/ Seeing the real estate crash coming, he began writing in Nov 2007. He called the recession in early 2008 (a controversial call then). Like everybody else, he didn't anticipate the depth of the crash in late 2008 -- although accurately reporting as it happened.


  • Yesterday we got more great news about the economy: there are more openings than unemployed. This is "we are ignorant because we read the.
  • It is fake but exciting clickbait.
  • This illustrates the danger of uncritically believing the news.

Very exciting news! Great news about the economy! Let the self-righteousness flow at the thought of all those open jobs unfilled while lazy people watch TV. It is a simple story, visible in one graph (click to enlarge). Purple is the number of job openings; red is the number of unemployed. The two were almost equal in January 2001.

Since the recession, unemployment has fallen while the number of openings has increased. In April 2018 there were more openings than unemployed. If we matched the unemployed with the jobs: presto, no unemployment!

Number of Job Openings and Unemployed

The narrative describes an economy at full employment, with shortages of skilled workers. There is one problem with this story. The best indicator of the supply-demand balance in a free market is price. For workers, that price is the hourly wage (75% of workers are "production and supervisory workers" who are paid per hour). Growth in real wages peaked in January 2015 at 2.3%/year. In April it was only 0.2%.

YoY percent change in Average Real Hourly Earnings of Workers

Unraveling the puzzle

The number of job openings comes from the Job Openings and Labor Turnover Survey of employers conducted by the Bureau of Labor Statistics. An employee quitting is an actual event, as is hiring and firing an employee. All have consequences. But what does it cost to electronically post a job opening – one with high requirements and low pay? Nothing.

Employers have become creative in playing the job market. During the history of the survey, there were always more hires than openings – until August 2014. Now there are more openings than hires. More openings than hires every month, while the growth rate in real wages slows.

Number of job openings and hires

So which signal tells the truth? Trust the one which reflects real money in motion: wages. When there are widespread skill shortages, real wages will rise.

Employers will do anything for workers,
except pay them more

These are all stories of employers who have rigged the game. Workers pay for their own training. Employers demand much and give little. Especially note the descriptions of pilots and truckers jobs: expensive training, hard work, long hours, employers complaining about shortages of workers – but no big pay increases.

Heather Long at the WaPo debunked the simple skills shortage story in "America has a massive truck driver shortage. Here’s why few want an $80,000 job." In an earlier story, she shows how trucking firms are raising wages – and raising their prices much faster.


See the April JOLTS survey report and the BLS' Highlights report.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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