The tightening of the American labor market in 2017 has been dramatic. Aside from the 2.1 million payroll jobs created over the twelve months ending November, the national unemployment rate fell to 4.1% in October and November, a level not seen since the early 2000’s.

As of November, 6.6 million American reported that they were unemployed and looking for work. Over the past twelve months the pool of unemployed Americans had declined by about 800,000.

The 4.1% unemployment rate is in fact lower than the estimated natural rate of unemployment, a concept similar to the old-fashioned definition of full employment with stable prices.

In other words, based on this simple principle, the rate of inflation should be accelerating. Since this is not obviously occurring, the likelihood is that the natural rate of unemployment is probably lower than the typical 4.5%-5% estimate.

Recent data collected by the U.S. Bureau of Labor Statistics on the Job Openings and Labor Turnover Survey (JOLTS) reported that the number of jobs waiting to be filled in November was close to an all-time high of six million.

Since the number of job seekers has dropped over the past year while unfilled jobs increased, the ratio of job openings per unemployed person increased to 0.92, its highest level since this data series began in 2000. As the following chart indicates, the pre-recession peak ratio was only 0.70.

Moreover, as a National Bank Hot Charts commentary indicates (Dec. 15, 2017), a NFIB Small Business Survey also points to a tightening job market with prospects of improving wages.

The number of NFIB firms reporting that they could not fill positions reached 32.5% in the fourth quarter, its highest level in more than 15 years.

The NFIB survey also indicated that 19% of its members were expecting to boost compensation in the next few months due to the tightening labor market. (See the second chart.)