Recap & Macro Outlook: 1 for 1!!

Michael Rudd, CFA | President, CEO and Portfolio Manager

We saw an interesting byline in an article from the Washington Post and felt that we should investigate further: “The United States now has a job opening for every unemployed person in the country…”. The first chart below is from the Bureau of Labor and Statistics and shows that we are indeed at a 2 decade high for job seekers, officially a 1:1 ratio as of March 2018. We recreated the chart that was used in this article to the right (Figure 1) but also took the time to add wage growth as another data point. What is interesting about the chart is that wage growth has risen from the 2015 low but remains subdued when compared to history, even in the face of such a strong employment environment. In our opinion, there must be a massive skills gap and we can see this in some of the companies that we own after speaking with management. Either the employers looking for new workers cannot find skilled prospects or the unemployed workers do not want the positions that are open. There is also an ongoing debate about structural unemployment (i.e. there will always be some unemployed no matter how strong the labour market is). Unfortunately, the job openings series does not go back beyond 2001 but the wage tracker goes a bit further back, so we put it below (Figure 2) against recession bars to see what that looks like. What is interesting is that after it peaks over 4% or 5%, recession has followed 6 months later. While we are not sure we see a peak in the data yet (we will closely follow over the next few months), the absolute level is relatively low so that causes us less concern.

This means that” we do not see a recession in the short-term and as we have noted in previous Outlooks, as far as we can see, the economy in the US continues to expand.

I was in Japan last week and did some work on one of our larger holdings in the Core Plus Fund, Softbank Group Inc. (JP: 9984). Please click through here to see a Spotlight piece on the company.

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