3 Job Market Trends to Watch for April Jobs Report

May 4, 2015

Last month’s gloomy jobs report caught most economists off guard. What should we be watching for this month in Friday’s jobs report from the federal government? Here are three trends we’re watching for at Glassdoor:

1. Signs of a Slowdown?
Last month the U.S. economy created just 126,000 new jobs. That’s half what most economists predicted and was the weakest monthly job gain in 15 months. Further, GDP was essentially flat in the first quarter of 2015, growing at an anemic 0.2 percent pace. Is this the beginning of a slowdown? Or a blip in an otherwise healthy job market?

The slow growth in March can largely be pinned on three factors. First is collapsing oil prices that prompted oil and gas layoffs, with Texas alone losing 25,000 jobs. Second is the strong U.S. dollar, up about 15 percent from last summer – a strong dollar hurt exporters and led to scaled back investments in durable goods. And finally is unusually rough winter weather in the first three months of 2015, with economists estimating it shaved 1 percent off GDP growth.

The takeaway is that these are all short-term phenomena. The underlying fundamentals of the labor market remain the strongest we’ve seen in a decade: the unemployment rate is 5.5 percent; job openings hit an all-time high of 5.1 million in February; and consumer optimism surged in April according to a one popular barometer of consumer sentiment.

What to Watch for Friday? We’re expecting a return to normal job growth of between170,000-230,000 new jobs in April, and a steady unemployment rate of 5.4-5.5 percent. We are now 70 months into the current economic expansion—well above the 60-month average since 1950—but fears of a labor market slowdown on the horizon are likely premature.

2. Continued Slow Wage Growth
Slow wage growth has been on every economist’s radar since the last recession. In March, we saw early signs that wages are finally starting to grow, with hourly earnings up 2.1 percent from a year ago. The fastest growth was in leisure and hospitality (3.2 percent), information (3.1 percent) and professional services (2.5 percent). Further, the much broader “Employment Cost Index”—which tracks wages as well as health insurance and other benefits—rose sharply by 2.6 percent year-over-year in the first quarter, the sharpest jump since 2008. These are signs wage growth is finally starting to turn around.

In the past few years, part of the reason wages have been growing slowly is a large supply of sidelined workers since the recession. Some academic research shows this type of slack in the labor market has exerted significant downward pressure on wages. As that slack unwinds and employers are finding open positions harder to fill, watch for wages to start picking up accordingly.

Another wage trend some economists have been watching is the impact of state and local minimum wage hikes scheduled to roll out at various dates this year. The latest is Seattle’s $15 minimum wage that began rolling out on April 1, 2015. But don’t expect a big impact here: less than 5 percent of the workforce is affected by changes in the federal minimum wage, and although a larger number are affected by state-local minimums these changes affect a relatively small fraction of the workforce.

What to Watch for Friday? We’re looking for continued wage growth of 2.0-2.2 percent in April. By year-end, watch for a return to 2.5-2.8 percent wage growth as labor markets continue tightening.

3. More Sidelined Workers Rejoining
The end of the last recession left a huge number of workers stuck in part-time jobs or dropping out of the labor force. Today, there are 6.4 million workers not in the labor force who say they want a job. That figure has fallen sharply from seven million in 2012 but remains well above the 4-5 million of normal times.

A key indicator here is the “labor force participation rate.” It fell slightly to 62.7 percent in March, and has been on a long, secular decline due to retiring Baby Boomers. A steady rate is evidence that rejoining workers are helping offset that decline. A second indicator is a broad measure of unemployment known as “U6” by economists that includes discouraged and sidelined workers. It fell to 10.9 percent in March, down from a whopping 17 percent in early 2010.

What to Watch for Friday? We’re looking for a continued slow decline in labor force participation of 62.6-62.7 percent in April, and improvement in the broader “U6” measure of unemployment to 10.7-10.8 percent.