The past few BLS jobs reports have caused a stir among those who diligently watch the monthly report. With the economy running hot, employers have picked up the pace of hiring in 2018. Is this recent escalation in monthly job gains here to stay? Here’s what we’ll be watching for in this Friday’s July BLS jobs report:
- +188,000 new jobs added to nonfarm payrolls in July;
- Unemployment rate down slightly to 3.9 percent;
- Average hourly earnings up 2.9 percent from one year ago;
- Labor force participation rate down slightly to 62.8 percent.
When it comes to the monthly BLS jobs report, one number gets the most attention: jobs added by the economy. This is what’s known to policy wonks as “monthly change in nonfarm payrolls.”
Despite an unemployment rate hovering near an 18-year low, job gains have actually accelerated in 2018. It’s an unusual trend that’s surprised many analysts as job growth almost always slows late in an economic cycle. But after years of declining job growth, employers have bucked the trend in 2018, adding an average of 215,000 new jobs to payrolls up from 182,000 in 2017 and 195,000 in 2016.
Is job growth really trending up? Or is it a short-term blip? One way to understand this is by doing what economists call a “time series decomposition” or a break down of the BLS statistic, to reveal the actual long-term trend in job gains.
Here’s how it works: First, we start with the top-line jobs added per month, as reported by BLS. The figure below shows monthly job gains since January 2016. On the far right is June’s reported 214,000 added jobs.
These numbers are “seasonally adjusted” by BLS, meaning their statisticians survey employers on payroll changes each month and then apply a “seasonal adjustment” to smooth out predictable seasonal swings in hiring. It’s an important step that gives us a more accurate picture of the U.S. labor market. The economy routinely swings from adding more than 1 million jobs per month to losing more than 3 million jobs per month during the course of a typical year. Without making those adjustments, monthly “noise” would hide important long-term trends.
To separate trend from noise, we parse topline BLS numbers into two parts: seasonal “swings” that repeat each month, and the long-term trend underneath. We’ll do that using a standard model known as a “seasonal ARIMA” as implemented by the Python “statsmodels” package (code and data are here).
The figure below shows the “seasonality” in monthly BLS jobs, which is the economy’s well-known ups and down of summer and holiday hiring seasons. These swings are massive, as you can see below. Jobs routinely swing from adding 700,000 to 800,000 jobs in April and October, to losing between -1 million to -3 million jobs in January and July. This dramatic churning is a fascinating feature of the U.S. job market, and is one concealed by focusing only on BLS seasonally adjusted figures.
Once we’ve accounted for this seasonal noise, it’s easy to see what’s really going on with monthly job gains. The figure below shows the long-term “trend” in job gains that reveals something surprising: job gains are actually slowing and have since early 2016. Although jobs gains picked up slightly in January 2017, 2018 is a continuation of a larger slowdown. The apparent uptick in job gains recently is illusory once we look more closely at the data.
A Simple Jobs Forecast
Using the above analysis, we can also make a simple forecast of monthly job gains for the next year. In the figure below, we show monthly BLS job gains since 2016 in green. In blue, we’ve tacked on a forecast for the next 12 months. The forecast is based on the same simple time-series model from above — accounting for trend and seasonality — along with a forecast we put together of BLS’s monthly seasonal adjustment factors for the coming year. (For a closer look at the numbers, see our code and data here.)
What’s next for jobs? According to this simple model, we should expect about 188,000 new jobs added by employers in July. Over the next year, we should expect somewhat slower job gains of around 154,000 jobs per month through next June. Of course, it’s important to remember that forecasts like these are at the whim of other external factors and actors. Our economists will be watching their crystal balls closely as the job market unfolds over the coming year.
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.
