“Labor Supply is a Headwind to Growth”
While the NFIB’s Small Business Optimism Index has yet to recover the lofty heights of late last year, some of the input data gave us a strong sense of déjà vu. The headline index itself improved to 103.5, down from the 105 and higherlevel reported for much of 2017 and 2018. Meanwhile, the labor market is showing continued signs of strength:
“Twenty-four percent of owners cited difficulty of finding qualified workers as their Single Most Important Business Problem, 1 point below the record high.”
“Thirty-eight percent of all owners reported job openings they could not fill in the current period, down 1 point from the record high”
All while “reports of compensation gains are at historically high levels”.
If that weren’t enough to trigger reminders of reports past, the NFIB reported that
“Sixty-nine percent [of respondents] in transportation reported few or no qualified applicants, 92 percent of those hiring or trying to hire” [emphasis our own].
However, the NFIB’s results showed “Inflation pressures remain subdued” and “Labor compensation is steadily growing around a 3 percent rate, while prices are increasing much more slowly”. This will be especially welcome news for the Fed. First, the good compensation reading will help allay the worries of Kashkari, Clarida, and others who have concerns about labor’s share, as discussed in Matthew Boesler’s article for Bloomberg. Second, while the survey was taken before the latest round of tariffs, it may help sooth the worries of those, who like Rosengren, are worried about changes in pricing. In any case, all Fed members, dove and hawk alike, should be pleased with the SBOI’s diagnosis that “There is no recession in sight this year”.
Flipping Headlines
Finally, and briefly, our sense of déjà vu was again triggered by a few recent articles on flipping houses. In addition to “Young Real Estate Flippers” taking losses as real estate markets cool, publicly-listed Zillow is taking some heat. As highlighted in a recent Wolfstreet article, Zillow’s entry into house flipping lead to a loss in the first quarter that amounted to “a stunning 15% of revenues”. Perhaps there’s no need to worry. CoreLogic reports that the median annualized return on flipping was “just over 40 percent in the fourth quarter of 2018”.
