Of all the myriad economic releases, both investors and
economists generally put special emphasis on the monthly
nonfarm payroll report
The jobs report provides a timely snapshot on the health of
the labor market, a critical issue because household spending
drives roughly 70% of U.S. economic activity and a second part of
focuses on full employment.
For these reasons, investors will be closely watching the
Department of Labor's release of January job data this Friday
. Though I'm skeptical that one month's number will have
any impact on Fed tapering, a continuation of the recent trend of
weak data may color the Fed's language around forward guidance.
In addition, another weak print would call into question the
investment thesis that
the U.S. recovery is likely to accelerate this
. Given the significance of the release, here's what I'd focus on
come Friday's jobs report:
Change in nonfarm payrolls.
The market is expecting a headline print of 184,000 additional
nonfarm jobs, right around the two-year average of 182,000. In
other words, investors are treating last month's reading of
74,000 new jobs as an aberration,
driven mostly by unseasonably cold weather
. To the extent January's temperatures were little better, job
creation may once again disappoint due to weather related issues.
To gauge the impact of weather, watch sectors like construction.
A big drop there would confirm that part of the issue is indeed
Weather aside, last month's reading once again demonstrated that
the unemployment rate has been falling
mostly thanks to a falling participation rate
, i.e. fewer Americans participating in the work force. Any
further drop in
the participation rate
, currently at a 34-year low, means that any improvement in the
unemployment rate should be largely ignored.
. As evidenced by last week's report on personal income,
lackluster wage growth is still a major
. The economy is not creating jobs at a fast enough rate to
overcome the structural headwinds - technology and the global
labor arbitrage - that are suppressing real incomes. Last month,
hourly wages decelerated to a 1.8% growth rate, a 9-month low.
Assuming wage growth remains stuck below 2%, this would confirm
the lack of any organic income growth and suggests that the
recent jump in consumption may not be sustainable.
To be sure, investors should never place too much importance
on any one economic number, particularly one that is potentially
distorted by exogenous factors like weather. For that reason, I
don't think the Fed will be moved to change its current policy,
regardless of Friday's nonfarm payroll report.
Still, in the event of another weak number market,
participants will want to at least revisit their assumptions
regarding the U.S. economy. Another weak month, particularly if
wages remain stagnant, suggests that, once again, economic
optimism may need to be tempered.
Russ Koesterich, CFA, is the Chief Investment Strategist
for BlackRock and iShares Chief Global Investment Strategist.
He is a regular contributor to
and you can find more of his posts