A Surge of Optimism? What to Watch in Friday’s Jobs Report

January 3, 2017

This Friday, Americans will get the last update on the 2016 job market from the federal government. As we look forward to a new year, here’s what we’ll be watching for in the December jobs report from the BLS:

  • 166,000 new jobs added to nonfarm payrolls in December.
  • Unemployment rate up slightly to 4.7 percent.
  • Average hourly wages up 2.6 percent from one year ago.
  • Labor force participation rate up to 62.8 percent.

Post Election Optimism

With the contentious presidential election behind us, many Americans are turning an optimistic eye toward the economy in the year ahead.

Since Election Day, one famous survey from the University of Michigan shows consumer confidence has surged, hitting the highest point in December in more than 12 years. And the surge appears clearly linked to the election. According to the survey, “[A]n all-time record number of consumers (18 percent) spontaneously mentioned the expected favorable impact of Trump’s policies on the economy. This was twice as high as the prior peak (9 percent) recorded in 1981 when Reagan took office.” 

Aside from consumer sentiment, financial markets have also surged since the election. Since Nov. 8, the Dow Jones Industrial Average is up 8.8 percent, which represents a massive gain in less than two months. If that pace were to continue all year, that would amount to a blazing annualized rate of return of 87.4 percent on the stock market. While a continued surge is unlikely, it illustrates the powerful psychology of belief in real-world financial markets following national elections.

Job Market Impact

On Friday, we expect some of this optimism to be reflected in the latest jobs numbers from the BLS. We’re expecting steady job gains of roughly 166,000 new jobs in December, slightly below the pace of job growth over the past year. Thanks to surging consumer sentiment, we expect some workers to reenter the labor force, temporarily boosting the labor force participation rate slightly to 62.8 percent. Since some of those rejoining workers will likely join the ranks of the unemployed, we also expect an unemployment rate up slightly to 4.7 percent in December—still near the level most economists consider “full employment.”

The Wage Picture

Although not all areas of the country are experiencing strong growth—for example, rural areas reliant on manufacturing and energy are facing tough times—most U.S. cities today are booming. Unemployment rates are below 3 percent in many metros, with some smaller metros below 2 percent such as Fargo, N.D. and Sioux Falls, S.D.

Today’s healthy labor market is putting more workers in the driver’s seat when it comes to bargaining for pay raises. Both Glassdoor and BLS data show a trend toward accelerating pay growth in 2016. However, our own data suggest pay growth may have pulled back slightly as 2016 came to a close.

The December edition of the Glassdoor Local Pay Reports shows U.S. median base pay growth slowed slightly to 2.7 percent year over year (YOY) in December to $51,750 per year. That’s a slight dip from the 3.1 percent pay growth we recorded last month.

Nevertheless, this one-month slowdown in pay growth isn’t likely cause for alarm. With wages across the nation growing rapidly for in-demand positions like construction laborers (9.4 percent YOY pay growth), machine operators (7.6 percent YOY pay growth), customer service managers (7.4 percent YOY pay growth), warehouse associates (7.2 percent YOY pay growth), and recruiters (6.7 percent YOY pay growth), our data show an economy that’s healthy and growing for most jobs and cities today. In Friday’s jobs report, we expect to see average hourly earnings up 2.6 percent from a year ago—largely unchanged from the 2.5 percent pace of last month.

The Elephant in the Room: Fed Policy

Now that the Federal Reserve’s interest rate setting committee voted to raise interest rates by a quarter point in December, all eyes are on the pace of Fed tightening in the coming year. During 2017, most experts today expect three more interest rate increases from the Fed.

While economists are divided on the issue, many believe this move to return interest rates to their normal levels of 2-4 percent is prudent, following several years of extraordinary Fed policy of holding the economy’s baseline interest rate near zero—a move that risks creating bubbles in asset prices due to excessive borrowing at today’s artificially depressed interest rates.

However, there is also risk in this new path toward tighter U.S. monetary policy. Moving too quickly to raise interest rates is a well-known recipe for recession, as policymakers learned dramatically during the Fed tightening that sparked the 1981-82 recession.

As the Fed carries us into a new era of higher interest rates, economists will be watching for signs of a slowdown—particularly in highly leveraged areas of the economy such as construction and manufacturing that have historically been most affected by Fed policy that boosts the cost of borrowing.

To speak with Dr. Andrew Chamberlain about this month’s jobs report or labor market trends, contact pr [at] glassdoor [dot] com. For the latest economics and labor market updates, subscribe to email alerts here and follow @adchamberlain.