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February 20, 2018

The Job Market is Hot. No Really, It Is.

1. People are quitting their jobs in record numbers. This suggests that people are confident in their ability to find other jobs and are trading up.

2. Companies are hiring and posting new openings in record numbers. This is a job seeker's market. 

3. Layoffs are steadily lower than before the global financial crisis. Given that companies are actively seeking new employees, one might surmise that companies are operating at minimum viable staffing levels and require new employees to help support growth.

4. The job market is tighter. As a consequence, wage growth rates have steadily risen over the past few years.

Conclusion 1: I did not dissect the data, but if I had you might see divergent tales - one of hiring in part-time, low wage sectors and another of real stagnation for the middle classes. Still, the aggregate story is important, as is the oscillating ocean tide. Not all will benefit to the same degree, but what raises one boat generally raises others.

Conclusion 2: The charts above are a recent snapshot in time. The post global financial crisis data looks great and will have a cyclical effect on the economy. However, one must not forget that the long run paints a different picture - one of decades of real wage stagnation and widening income disparity.

Conclusion 3: If hiring trends continue, expect wage pressures to intensify potentially sparking a modest wage-price inflation spiral. With rates this low, even modest changes in inflationary pressure, and therefore interest rates, will have a significant impact on the economy. Because people lever up to saturate debt servicing capacity when rates decline, what matters to the cash flow tied up by debt servicing is the relative - not absolute - change in rates.

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