Here’s What to Expect in Friday’s Jobs Report


June 1, 2015

With summer just around the corner, economists are eyeing this Friday’s jobs numbers for clues about where the market is headed next. Here are two big trends our Economic Research team is watching here at Glassdoor.

1. Back to Steady Job Growth
After a bumpy ride in March, job growth in April was sunny skies and smooth sailing. The U.S. economy created 223,000 jobs last month, just below the 24-month average of 226,000 jobs created and squarely on target with most economists’ expectations.

As we noted last month, the lousy March jobs report was mostly due to short-term factors: falling oil prices, bad weather and a strong U.S. dollar. And this is clear in the data: Among the 10 worst industries for job growth over the past year, three were in the energy sector hit hard by falling oil prices, while four were in export-reliant manufacturing impacted by the strong dollar (see below table).

America’s 10 Worst Industries for Job Growth

Industry

12-Month Job Growth (April 2015)

12-Month Percentage Change (April 2015)

Support activities for mining

-18,300

-4.2

State government, excluding education

-9,700

-0.4
Clothing and clothing accessories stores

-9,000

-0.7

Publishing industries, except Internet

-7,300

-1.0

Printing and related support activities (Manufacturing)

-6,800

-1.5
Paper and paper products (Manufacturing)

-6,600

-1.8

Apparel (Manufacturing)

-6,000

-4.2

Mining, except oil and gas

-5,300

-2.6

Electrical equipment and appliances (Manufacturing)

-3,800

-1.0

Petroleum and coal products

-2,000

-1.8

Source: U.S. Bureau of Labor Statistics CES survey

With winter weather behind us, oil prices up from their March low, and the dollar down from its March peak, these bumps in the road are receding in the rearview mirror. The underlying fundamentals of the job market today remain the strongest we’ve seen in a generation: the unemployment rate is 5.4 percent; job openings are near an all-time high of 5.0 million in March; and one popular barometer of consumer sentiment—although down from its peak last month—is still up 10.7 percent in May from a year ago.

What to Watch for Friday? With no major labor market disruptions this month, all signs are pointing toward an uneventful jobs report. We’re expecting typical job growth of between 200,000 – 240,000 new jobs in May, and continued improvement in the unemployment rate to 5.3 – 5.4 percent.

2. Watching for Wage Growth
The second big trend we’re watching closely is wage growth. Economists have long taught that wages and the unemployment rate are intimately related. As unemployment falls, workers become scarcer and companies eventually bid up wages to attract talent.

So much for theory. In practice, research shows the correlation between falling unemployment rates and rising wages is weak. Nevertheless, as the unemployment rate inches closer to 5 percent—a level most economists consider “full employment”—we’re bound to see a pick up in wage growth, particularly in sectors like heath, information technology, and leisure and hospitality where a growing number of anecdotes suggest employers are having trouble finding qualified candidates.

In recent months the unemployment rate has dipped to 5.4 percent. We’re now finally seeing early signs in the data of a pick up in wage growth. The closely watched Employment Cost Index, which tracks wages as well as health insurance and other benefits, rose sharply by 2.6 percent year-over-year during the first quarter of this year, the sharpest jump since 2008. And recent data from the BLS shows real wages grew by around 2.3 percent over the past year. That’s still slow historically, but the trend is clearly drifting upward since 2012.

What to Watch for Friday? We’re looking for continued wage growth of 2.2-2.5 percent in May. By year-end, watch for a return to 2.5-2.8 percent wage growth as labor markets continue improving for job seekers. However, economists teach that worker productivity, not just a tight labor market, is what drives wages in the long run. Productivity is down sharply for U.S. workers since the 1990s, growing at just 1.7 percent per year today compared to 4 percent in past decades. Until output per hour turns around, sustained growth in America’s paychecks may remain elusive.