You may not be thinking about it yet, but at the end of this week, the Bureau of Labor Statistics (BLS) will release their monthly jobs report. Not that long ago, writing “You may not be thinking about it” regarding the jobs report would have been unthinkable.
The recession of 2008-9 was the deepest since the 1930s, and the most tangible effect of economic collapses like that is soaring unemployment. By the end of 2009, the unemployment rate had hit ten percent, so it is no wonder that that number has been an obsession during the recovery.
Now though, after a strong, sustained recovery that has pushed unemployment to multi-year lows, the jobs report seems of little interest, irrelevant almost. But is that true, or should you be paying close attention on Friday?
If the BLS report were just about the unemployment rate, you could probably pay little mind to it, but it isn’t. The report is a broad snapshot of the labor market during each month and contains information that is relevant to more current areas of focus, such as growth and inflation.
First though, let’s consider what is expected from this month’s numbers on the jobs front. Non-Farm payrolls, the number of jobs that exist outside of the volatile and highly seasonal agricultural industry, are expected to increase by around 190k, more than the 157k increase shown last month.
The headline unemployment rate, a number that is derived from the responses to a national survey of households conducted by the bureau, is expected to hold steady at 3.9%, as an increase of around 200k jobs each month is approximately offset by the monthly growth in the labor force.
As you can see from the chart above, the unemployment rate has been falling for nearly a decade and is not below the pre-Recession levels. That has led many to believe that we are at or close to full employment, where everybody that wants a job can get one. Inevitably then, neither of the usually closely watched data points, the unemployment rate and non-farm payrolls, is considered particularly significant at this point in the recovery.
That doesn’t mean, however, that the jobs report won’t be closely watched.
The main area of focus will be more to do with the quality of jobs in the economy than with the quantity. It is a measure of the severity of the recession that even as the recovery has progressed, wage growth has been relatively slow. It seems that workers are still just glad to have a job while employers are still reluctant to increase fixed costs.
If the overall rate of growth in the economy, as measured by growth in GDP, is to increase by any significant amount, wages must rise.
The average hourly wage will therefore be the most significant part of Friday’s release, but good news on that front may not be as good as it seems. Wages are expected to climb around 0.3% monthly, keeping the annual rate at around 2.7%. That is a stronger rate of increase than we have become accustomed to over the last decade or so and, more importantly is above the Fed’s 2% target core inflation rate.
Wages don’t directly add to inflation, but people with more money in their pockets do tend to spend more, which in theory adds to the upward pressure on prices. Stronger than expected wage growth, therefore, could prompt the Fed to hike rates more aggressively, and that prospect would push stocks lower on a strong wage number.
As the week progresses, the focus of the media, and indeed of traders, is likely to be on more immediate concerns, particularly those that are trade-related. You have to believe, however, that as damaging as tariffs can be in the short term, the damage is to both sides involved in a dispute, so an agreement will be reached before too long.
News on that front will probably overshadow the jobs report due out on Friday, but while the headline numbers in that report will be less significant than in the past it will still contain information of vital importance to the economy over the long term. Smart investors will therefore be holding off any major decisions until that data is known.