Job Openings at 14-Year High

For the first time since January 2001, the U.S. had more than five million job openings at the end of December, a sign of a labor environment shifting in favor of workers.

December was also the best month for hiring since before the recession struck more than seven years ago. More than 5.1 million people were hired in December, the most since November 2007, according to the Labor Department’s Job Openings and Labor Turnover Survey, known as JOLTS.

The report adds to signs that the labor market is strengthening considerably. The Labor Department’s main jobs report, released on February 6, showed that November, December and January comprised the best three-month stretch of hiring since 1997, raising hope that the U.S economy will start delivering stronger wage growth for a wider swath of Americans after more than five years of sluggish recovery from a deep recession.

The Labor Department’s main jobs report shows the net change in jobs — a gain of 257,000 in January — but the JOLTS report digs one level deeper, cataloging the millions of workers each month who quit a job or are laid off, retire, start a new job or switch jobs.

The JOLTS report is closely followed by the Federal Reserve. Fed Chairwoman Janet Yellen has identified the report’s tally of the number of people who voluntarily quit their job each month as an important barometer of the economy’s health. In a good labor market, workers are more willing to quit — owing to greater confidence in their prospects or greater opportunities to find different work.

Voluntary quitting follows the opposite pattern of involuntary layoffs. During the recession, the number of layoffs surged while the number of quits plunged. In the past five years, layoffs have declined and quitting has slowly increased. But job quitting has yet to become as common as it was prior to the recession, a sign that suggests the labor market’s recovery remains incomplete.

The rates of quitting and layoffs were little changed in December from a month earlier.

Skills Gap Contributes to Widening U.S. Inequality

The U.S. workforce isn’t keeping pace with the economy’s need for skilled workers, and the gap in acquiring skills is one cause of widening inequality and sluggish economic mobility, Federal Reserve Bank of Richmond President Jeffrey Lacker said on Tuesday.

Many factors contribute to inequality and the persistence of that inequality both within and across generations, Mr. Lacker said at the Emerging Issues Forum, a convention in Raleigh, N.C. But the growing disparity in the acquisition of skills, often in the form of college education, appears to play a very significant role.

Human capital, which Mr. Lacker defined as the knowledge and skills that make people more productive, drives innovation, which itself drives economic growth, he said. But, he said, the large earnings gap between workers with a college degree and those with only a high-school education suggests that we are failing to keep pace with our economy’s growing demand for skilled workers.

This isn’t the first time Mr. Lacker has expressed worries about workforce development. In a speech last June in Lynchburg, Va. he said that the issue is intimately related to the second part of the Fed’s legislative mandate, which is promoting maximum employment. The Fed is also required to keep prices stable.)

A large number of students enroll in college but drop out without completing a degree, Mr. Lacker said on Tuesday, indicating that many students would benefit from more, better information about what is actually required for college success.

Students should be provided with information about other career and postsecondary education options, such as community colleges, Mr. Lacker said. He also said that targeted information and assistance could help ensure that well-qualified students don’t forgo college because of the perceived obstacles, such as cost or because of social norms that cause them to underestimate the potential benefits of college attendance or their likelihoods of success.

Mr. Lacker said that investment in high-quality early childhood education is crucial to help people acquire so-called non-cognitive skills such as patience, work ethic and following directions. While innovation and technological change displace many workers, they also raise standards of living, he said.

Just as technology reduced the need for farm labor, it also allowed the creation of new jobs in new sectors, and I don’t think any of us would argue that we would be better off if nearly half the population was employed to supply our caloric needs, rather than being free to work as engineers or truck drivers or nurses or whatever, he said.

Fed Works to Cultivate Stronger Ties to GOP

As the Federal Reserve prepares to begin raising interest rates later this year, it is readying for what may be another big challenge in 2015: the shift to a Republican-controlled Congress.

The Fed’s only Republican governor, Jerome Powell, has begun making the central bank’s case to the GOP, in public and private, against proposals Fed officials say could limit its independence. And the bank has hired and promoted Republicans within its Congressional Liaison Office since the November midterm elections, when the GOP won enough seats to take control of the Senate and expand its House majority.

It is unclear whether these efforts will overcome the perception among many Republicans that the liaison office, which lobbies for the bank’s interests on Capitol Hill, has in recent years been too closely aligned with Democrats and hasn’t done enough to cultivate relationships within the GOP, according to current and former Hill staffers and financial-industry lobbyists.

I think there’s a recognition at the Fed that they need to at least make a gesture to Republicans, said Mark Calabria, a former aide to Senate Banking Committee Chairman Richard Shelby (R. Ala.) and the director of financial-regulations studies at the Cato Institute. Whether it changes policy or not I think is an open question.

In a speech Monday, Mr. Powell laid out his objections to GOP-backed proposals that he said would threaten Fed independence, including legislation to expand congressional oversight of the bank’s interest-rate decisions. Advocates of the proposal say it would bring more transparency to policy decisions.

The so-called Audit-the-Fed bill, introduced by Sen. Rand Paul (R. Ky.), risks inserting the Congress directly into monetary policy decision making, reversing decades of deliberate effort by the Congress to insulate the Fed from political pressure in carrying out its day-to-day duties, Mr. Powell said.

Mr. Powell, a former private-equity executive who served in the administration of George H.W. Bush, also met privately on Jan. 22 with Senate Republican chiefs of staff and staff directors.

The Fed last month hired Mike Lee, a former senior Republican economist on the Senate Banking Committee under Sen. Mike Crapo (R. Idaho), to join the Congressional Liaison Office, as well as Mark Libell, the former legislative director for retired Sen. John D. Rockefeller IV (D. W.Va.), who joined the office in December. And it promoted Jennifer Gallagher, a former aide to Sen. Judd Gregg (R. N.H.) on the Banking Committee, to the No. 2 position in the office.

The new hires are only filling existing positions. But the changes signal the Fed may be trying to shift its focus to Republicans after years of tilting toward Democrats while they controlled the Senate, said one Republican Senate aide.

The closer relationships in recent years with Democrats may have a straightforward explanation. Democrats controlled the Senate from 2007 through last year. They controlled the House, too, in 2010, when the Dodd-Frank financial overhaul law was passed, the last time the Fed faced a major challenge to its powers from Congress.

Now, GOP-backed proposals to change Fed operations that languished in the last Congress have better prospects of passage. One is the Audit-the-Fed bill. Another would require the bank to use a mathematical rule to guide rate decisions, which it would then have to explain to Congress. Mr. Powell said Monday there also is talk among lawmakers about proposing further curbs on the Fed’s emergency lending powers.

He called all three ideas misguided.

The Fed’s first line of defense against such efforts is the Congressional Liaison Office, which coordinates communication between the bank and Congress. At its core, it is tasked with defending the Fed’s interests on Capitol Hill. It is a delicate balance: the Fed is accountable to Congress, which sets its mandate, but it operates independently of the other branches of government.

Private Bank Demand Saves Evergrande Bond

Evergrande shrinks its bond size amid lukewarm demand, suggesting that investors have become at least slightly selective following Kaisa’s brush with liquidation. Evergrande, a Guangzhou-based single-B-rated home builder sold a $1 billion bond, less than its targeted $1.5 billion offer launched Tuesday, despite dangling a plump 12% coupon on the five-year note. A billion [$1 billion] was the appropriate size to print the note, while the order book was about $1.5 billion, a person close to the matter says, adding the bond was mostly taken up by tycoons and private bank investors. Its reception contrasts with seven times subscription for Shimao’s double-B-rated bond that priced last week, although Evergrande was able to raise more cash than Shimao’s $800 million deal. It reflects investors are differentiating among the junk-rated property credits, with those on the lower end of this spectrum finding demand somewhat less enthusiastic than before.

In Bonds, One Man’s Big Sales Pitch

Can one man drag corporate-bond trading into a new age, where others have failed?

Meet Mehra Cactus Raazi, a former salesman from Goldman Sachs Group, who has been working to do just that at fixed-income technology operator Tradeweb Markets.

The New York company is counting on Mr. Raazi as the frontman for its electronic bond-trading system, an effort to bring the corporate-bond world into the 21st century. It has charged him with drumming up interest among asset managers and hedge funds for a system it says will enable easier and cheaper trading in U.S. corporate debt.

While trading technology can be humdrum, Mr. Raazi is anything but. Tall and athletic, with chiseled features, a neat crop of salt-and-pepper hair and a taste for custom motorcycles, he sometimes sports an ascot with skulls on it or a leather wristband featuring silver skulls. He practices the combat sport muay thai and has a stake in a lower Manhattan late-night burlesque club, The Box, said people familiar with his activities.

He comes off very polished, said Michael Adams, managing director at Sandler O’Neill + Partners LP, who saw Tradeweb’s new platform in the fall.

Whether the new platform, and Mr. Raazi’s efforts to sell it, will succeed still is uncertain, according to traders and analysts. Tradeweb has been silent on any progress it has made so far.

That is despite investors calling for more efficiencies amid shrinking stockpiles of bonds at securities dealers. For years, electronic trading has remained a fraction of the $7.7 trillion U.S. corporate-bond market. Instead, much of the trading is done over the phone.

Only about 15% of corporate-bond trading in the U.S. between investors and dealers is conducted electronically today, up from about 8% in 2010, according to bond-platform owner MarketAxess Holdings which has the vast majority of that volume.

Appetite is rampant among startups, exchanges and others to find the magic formula that can boost that share of electronic trading, because of the vast sums to be made from becoming the dominant player.

As many as 18 new companies are in various stages of launching competing platforms this year in the U.S. according to researcher Greenwich Associates.

We’re not coming at this thing with a crystal ball, said Tradeweb’s Chief Executive Lee Olesky in a briefing with reporters in the fall. Mr. Raazi declined to comment for this article through a spokesman.

Tradeweb’s effort has powerful backers in the 11 banks that co-own the company, including four of the big U.S. bond dealers: Bank of America Merrill Lynch, Citigroup Inc. Goldman and J.P. Morgan Chase.

But it faces significant headwinds, as shown by the failure of numerous recent bond-platform launches, including at least two previous attempts by Tradeweb in the U.S. Past efforts have foundered for a variety of reasons, including that old trading habits are slow to change.

Advancing the workings of corporate-bond trading is the latest challenge facing issuers and investors. A doubling of issuance volumes since the financial crisis has vastly expanded U.S. corporate-debt securities outstanding. Yet liquidity, reflecting the capacity to buy or sell securities quickly at a reasonable price, has retreated, traders say.

Into this breach steps Mr. Raazi, who is 44 years old and was educated in California. In 2007, Goldman praised him for swiftly closing out $1.2 billion of bets against souring mortgage securities. In 2010, a Senate subcommittee probing banks’ role in the U.S. housing crisis released a March 2007 email in which a Goldman executive lauded Mr. Raazi’s timely trading. Cactus Delivers was the subject line.

During a sales pitch, Mr. Raazi, who is Tradeweb’s head of credit for North America, often wears a slim-fitting Italian suit and skinny black tie, motions breezily over heavily produced screenshots and uses plenty of eye contact. Some people who knew him at Goldman said he used a rubber exercise ball on the trading floor to keep his abdominal muscles in shape.

Tradeweb says it is offering investors something unique: streaming prices on a batch of investment-grade bonds, on trades of $1 million or greater, and the expectation that dealers will remain firm on the streaming prices for at least 95% of trades. That would be significant for a market where dealers typically offer indicative prices.

But Tradeweb isn’t strictly enforcing the 95% standard, meaning some dealers haven’t been willing to buy or sell bonds at the prices they quoted, said some people who have seen the platform. Since it was launched last year, it has generated $1 billion of volume, less than half a day’s worth of MarketAxess’s daily average volume, said people familiar with the matter. A Tradeweb spokesman declined to comment on volumes.