The “Underbelly of labor market improving” writes Neil Dutta of Renaissance Macro Research, who writes a daily screed on economic releases. It is a worthwhile read.
We agree with Neil. The latest data from the JOLTS (Job Openings and Labor Turnover Survey) report is used to update our Beveridge Curve series. Beveridge Curves are used for several different measures of unemployment in order to disaggregate what is otherwise the major unemployment rate. The Beveridge Curves listed on our website offer some of those comparisons. There is a lot more data in the labor report that is not evidenced in the Beveridge Curves depicted here; however, they are still just as strong in terms of suggesting that Neil is correct.
Our conclusion is that the job openings side of the Beveridge Curves has now reached recovery levels. That is shown in those charts.
The US continues to have a labor cohort that is chronically unemployed. Our bifurcated US economy now has two component parts. While one part languishes, the other part appears to be nearly fully recovered. The question is whether we will begin to see any pressures for higher employment costs and wages as a result. That question looms in front of the US economy and is a major determinant of possible Federal Reserve (Fed) policy change.
Will we see any improvement in the outlook for the chronic, long-term unemployed or for the growing cohort of disabled workers who are not in the labor force? Probably not. An improved employment outlook for that group will be driven by long-term structural solutions that will not be impacted materially by Fed policy changes or other Washington, DC-based alterations. Given our political structure, we do not expect any Washington, DC-based changes until at least 2017.
Let’s get back to the first question regarding the Fed. What will be the triggers that might accelerate Fed policy change? A more fundamental question, asked by my partner Bob Eisenbeis, is whether or not rising wages are inflationary. Bob notes that productivity gains can support rising wages without exerting inflationary pressures. Will we see the productivity gains? Do we have sufficient expanding capital investment in order to do so?
In the Technology sector, it is appears that the answer is yes. In the recovery, the Technology sector is one of the early beneficiaries of realignment or improvement in capital investment. Firms and agents tend to invest in new technology software and hardware rapidly as economic conditions improve. The reason is simple. The payback for the investment is fast. Longer-term investments take more structure. Shorter-term investments, which recover quickly, have a more immediate impact. Therefore, we see improvements Technology sector.
Even as Cumberland Advisors has a strategic cash reserve because of world events, it also has an invested position in the Technology sector. We like the Technology sector. We think it has growth possibilities and is one of the few sectors where we would deploy stock market investing now. We use a selection of exchange-traded funds (ETFs) in order to establish those positions.
David R. Kotok, Chairman and Chief Investment Officer