On Friday, we’ll get the first reading from the Bureau of Labor Statistics on the state of the U.S. labor market in 2020. After 2019 was characterized by a healthy but slowing market, we expect January’s figures to reflect the same trend. However, cracks in other labor market indicators are starting to show. And the real news this Friday may be fresh insights into some old news—benchmark revisions to be released this Friday are expected to subtract 501,000 jobs from 2018–2019 data.
January Jobs Report Predictions
Here’s what our team at Glassdoor predicts for the January jobs report:
- 150,000 new jobs added to payrolls;
- Unemployment rate unchanged at 3.5 percent;
- Average hourly earnings up 3.0 percent; and
- Labor force participation steady at 63.2 percent.
The labor market is still adding jobs at a healthy clip, and we expect that to hold in January. The story in last month’s jobs report was the surprise deceleration in wage growth down to 2.9 percent annually. We expect that metric to revert back towards the long-term average in January and won’t be surprised if December’s weak figures are also revised upward. Unemployment and labor force participation are likely to remain stable at healthy levels. But, despite our expectations that January’s figures are likely to be steady, there are significant risks for 2020.
Known Unknowns and Unknown Unknowns
As the new year unfolds, the economy faces a bevy of known risks, some carried over from 2019 and others difficult to anticipate. Politics are expected to loom large over 2020 with the ongoing impeachment proceedings, upcoming Democratic presidential primaries and November election. And even though the U.S.-China trade war reached a temporary ceasefire recently with the signing of the Phase 1 trade deal, many tariffs remain in place and the Trump administration has stated its readiness to raise tariffs if China does not fulfill its end of the bargain. The administration has also threatened to open a new front in the trade war with Europe—the result of which may be jumping from one self-inflicted trade problem to another.
But perhaps most concerning is that January has already reminded us that “black swan” events have the capacity to substantially disrupt the economy. In just the first month of the year, investors were jolted by fears of armed conflict with Iran and subsequent disruptions to global oil markets. And now China and the world are responding aggressively to the outbreak of a novel coronavirus with the potential to disrupt global flows of people and goods. While it remains to be seen how both situations will evolve, their unpredictability raises serious questions as to how prepared the economy is for negative shocks.
It’s hard to predict which type of risk—known or unknown—will play a larger role in 2020, but both have the potential to sink the economic expansion. The labor market has been a pillar of the U.S. economy, acting as a buffer against volatility. But if that seawall erodes, the expansion could drown under either slowly rising seas or a sudden storm.
Cracks in the Labor Market
Last month’s slowdown in wage growth surprised economists. The slowdown could indicate that employer demand is waning at a time when monthly job gains are already slowing. Job openings can act as a real-time measurement of employer demand and a forward-looking indicator for the trajectory of the labor market.
The most recent data from Glassdoor’s Job Market Report shows that job openings have taken a turn for the worse. Job openings on Glassdoor in January dropped 3.1 percent year-over-year, the second month in a row of declining job openings year-over-year and the worst performance since we started tracking open jobs gains in 2017.
The Bureau of Labor Statistics also releases a measure of job openings in their Job Openings and Labor Turnover Survey (JOLTS), though it’s on a 2-month lag. Their most recent data from November, however, is substantially more pessimistic, showing a steep 10.8 percent drop year-over-year in job openings—826,000 fewer open jobs than in November 2018. That’s the worst performance since 2009 when the economy was still shedding jobs following the Great Recession—hardly a comforting comparison.
Friday’s Figure to Watch: Benchmark Revisions
In this month’s jobs report, the Bureau of Labor Statistics will release its benchmark revisions for the March 2018 to March 2019 period. While benchmark revisions may not sound exciting, this year’s revisions offer the potential to fundamentally change the narrative of the labor market’s trajectory over the last two years.
The initial estimates released last August forecast a staggering downward revision in employment of 501,000 jobs for March 2019. If that estimate holds, it would represent the largest downward revision since 2009. These revisions are forecast to most negatively affect retail trade (-146,400), leisure & hospitality (-175,000), and professional & business services (-163,000), while leaving goods-producing sectors largely untouched.
A downward revision of this size could temper 2018’s above-trend payrolls growth that some have attributed to President Trump’s tax cuts. Additionally, downward revisions could pull 2019 performance below that of 2011, giving 2019 the unenviable title of the slowest payrolls growth since 2010, when the labor market was still losing jobs.
All this being said, it is worth remembering that the BLS’s benchmark revision estimate of -501,000 jobs is just that—an estimate. It is likely that the final revision released this Friday will end up being smaller than the preliminary estimate, but if the revision is near the initial estimate, that will certainly tone down expectations for the labor market in 2020.
Today’s labor market appears to be healthy: payrolls are growing, unemployment is at a 50-year low and accommodative fiscal and monetary policies are supporting the economy. While we don’t expect January’s jobs report to show a significant deceleration, forward-looking indicators are beginning to flash warning signs. And the risks of a sudden economic shock should not be underestimated.
And even if January’s figures are relatively unassuming, the real news may come from the benchmark revisions. If downward revisions are anywhere near preliminary estimates, that will tamp down expectations for the trajectory of the labor market as we advance further into 2020.
Press inquiries: To speak with the Glassdoor Economic Research team about this Friday’s BLS jobs report, please email firstname.lastname@example.org.