Jobs report: 'We have more job openings than unemployed people,' economist says

Apollo Global Management Chief Economist Torsten Slok evaluates the November jobs report data, assessing the wage growth progression, consumer price indexes, and what consistent elevated inflation could mean for consumers.

Apollo Global Management is Yahoo Finance’s parent company.

Video transcript

JULIE HYMAN: Torsten Slok is back with us, Apollo Global Management chief economist. And we should mention, by the way, Apollo is also the parent company of Yahoo. Torsten, it's always great to see you. You know, this report raises some questions, obviously. What sort of stands out to you the most from this report and what seems like a sort of conflicting picture?

TORSTEN SLOK: Yeah, I think the most important message here is that the headline number, while it was lower than expected, basically all other numbers were better than expected. So headline at 210,000 was certainly lower than the 550 that the market expected. But if you look at, as [? Emily ?] just ran through, the participation rate went up. That means that more people are coming back to the labor market.

You saw the unemployment rate drop quite substantially to 4.2%. Remember, the unemployment rate before the pandemic came along was at three and a 1/2, so we are really approaching quite quickly the level of the unemployment rate that we had earlier. In other words, we are approaching what the Fed will worry most about, namely full employment.

And we also saw, if you look at the household survey, that the number of jobs created in the household survey-- remember, the employment report has a survey of firms. And that's the one that gets the most attention. That's your 210,000 jobs created.

But the household survey, when you ask workers, did you find a job in November, it showed more than a million jobs created. So there's also a conflict even on the headline itself, where the headline number of 210 is slightly disappointing.

And finally, as [? Emily ?] also just mentioned, wage growth of 4.8% overall. And if you look at leisure and hospitality, that's an area where, as we also just saw, we didn't see as much growth in jobs as we would have liked and as the consensus had expected. But you actually saw wage growth go up further now. Wages in leisure and hospitality are up 12% year-over-year.

So there's certainly-- yes, the headline was a bit worse than expected. But really, all other components in the report were quite strong.

BRIAN SOZZI: Torsten, let's stay on that wage, that wage number up 4.8%. Do you think we're in an upward wage price spiral? Because the way that I think about it, wages are still going up in many sectors of the economy. I can only see that number accelerating in coming months.

TORSTEN SLOK: Yeah, I think that's right, Brian. I mean, if you think about this in the broader context of other indicators, if you look at the number of job openings-- at the moment, we have more than 10 million job openings, and we have about 7 million unemployed people. So that means that we have more job openings than we have unemployed people.

And there's a lot of data, including from CareerBuilder, that looks at the details of where those job openings are. And it is truck transportation jobs. It's warehousing. It's health care. It's nurses. So those sectors that generally have done well are also those sectors that have more job openings.

And at the same time, we're also seeing the quits rate-- meaning the number of people resigning their jobs voluntarily-- at the highest level ever. 3.3% of those who are employed quit their jobs every month. That might not sound like a lot, but that's just the highest level we've had for the last 20 years.

So the conclusion is, Brian, to your question, is that if the labor market still is now looking more and more overheated, the risks are certainly that we could see more upside pressure on wages. The only thing, then, to discuss, of course, is why is it that the participation rate is not only going up a little bit but going up a lot faster now that wages are going up?

And maybe the virus-- and this is what we don't know in this report is Omicron and the new variant is not part of this report. So it remains a little bit to be seen over the next few weeks what the labor market will do. But the conclusion is at this point, I think still the best guess is that we will see more upside pressure on wages.

BRIAN CHEUNG: Now Torsten, it's Brian here. I wanted to ask about the numbers that we saw in labor force participation edging up to 61.8%, but also, notably, the employment-to-population ratio, which won't have the noise of who's actively or who's not actively looking for a job, increase by 0.4% percentage points to 59.2%. That seems to be positive, right?

TORSTEN SLOK: Absolutely, because the bigger context of markets, of course, here is to ask the question, are we approaching full employment faster or slower than what we thought an hour ago? And the reason why that's important is that the Federal Reserve has the dual mandate of inflation at 2% and reaching full employment. And today's report mainly covers, of course, the question of how close are we to full employment.

But the wage component also speaks a bit to how worried should we be about inflation. And the employment-to-population ratio, as you highlight, is certainly moving up a bit faster than we thought. And that's also part of this underlying number of components that were actually a bit better than expected.

So that's why this report-- and this always makes the employment report difficult and interesting. It had the headline number, which people pay most attention to there, was a bit worse than expected. But really, all the other components were actually better than expected. And that's probably why markets are trading the way they are at the moment.

JULIE HYMAN: Torsten, to talk again about wage growth, we had a CPI number in October. And granted, it's not the same month, but still, bear with me for a moment-- 6.2%. You got wage growth of 4.8%. So even though wage growth is heating up, on a real basis, when I make a certain amount more and I'm going to the grocery store, is it still problematic that wages aren't actually rising more for-- in terms of American spending power?

TORSTEN SLOK: Absolutely, Julie, in the sense that inflation is going up faster than wages exactly as you're highlighting. And you could say, well, why is that a problem? Well, that's a problem for a number of reasons. We would like real incomes, we would like all households, to get higher wages and higher incomes. And that's, of course, not happening when you have inflation being higher.

And the second problem with inflation being more than 6% at the moment is that we're beginning to see in the consumer confidence survey where there are some questions asking people, is this a good time to buy a house? Is this a good time to buy a car? And also, what do you think about inflation more generally? And we're beginning to see consumer confidence go down because households, and the men and the women on the street, are responding that things are becoming too expensive.

So if that's the case, that means that inflation is beginning to become a real worry. And one way to look at the Fed's actions, and in particular what Jay Powell spoke about earlier this week, is that they are beginning to worry about that. If they allow inflation to stay very elevated, even if it starts to come down but it stays elevated for the next several quarters, the worry is that consumers could begin to change their behavior because they begin to take inflation and the level of prices into account.

So we're already seeing this. The prices of new cars is very high. The price of used cars is very high. The price of homes is also very high. And that's beginning to have some implications for how people think about should I buy a new car, should I buy a new house. And the whole conclusion, therefore, is that if you have the household sector getting more worried about inflation, it could begin to have some negative consequences. So yes, the discrepancy between wage growth and what inflation is doing is very important.

BRIAN SOZZI: So Torsten, let's say the Fed does move next year to address this inflation you're talking about. Let's say they do it with two rate hikes. What do your models suggest would happen to the economy if the Fed raises rates twice next year?

TORSTEN SLOK: Yeah, so I think that the economy should still be OK. What I do worry more about is markets, because valuations are, as you always talk about on your great show, that stock market valuations look relatively high. IG, high-yield, loan, credit spreads also look relatively tight by historical standards. So if you were on the back of relatively elevated valuations across all financial markets begin to raise the risk-free rate, then you suddenly begin a debate about should I invest in a risky asset or should I invest in the risk-free asset.

And if the risk-free asset, meaning the Fed rate or 10-year rates gradually begin to move higher, and if we have a taper tantrum or a situation where rates go up even faster because this is what the Fed wants to happen, then you can begin to ask, well, OK, if there is an increase in the risk-free rate, does that not create more vulnerability on risky assets, such as equities and credit, and spread product, meaning financial markets in the riskier space, more broadly?

So I would say I think the economy, Brian, to your question, would actually still be OK. But I'm actually quite worried about the vulnerabilities and the sensitivities in financial markets, simply because valuations are already so stretched.

JULIE HYMAN: Well, we'll see what happens next year. As we know, it's been a tough time to predict. Torsten, it's always great to see you. Good to catch up with you this morning on an important day here. Torsten Slok of Apollo Global Management, appreciate--