What to Watch for in Friday’s Jobs Report

As summer winds down, the labor market has continued its steady march upward. Here’s what we’ll be watching for in Friday’s latest BLS jobs report for August:

  • 169,000 new jobs added to nonfarm payrolls in August;
  • Unemployment rate steady at 4.3 percent;
  • Average hourly earnings up 2.6 percent from one year ago;
  • Labor force participation rate down slightly to 62.8 percent.

The U.S. labor market has surprised many analysts this summer, continuing a remarkable growth streak for an economy that’s more than eight years into an economic expansion — the third longest since WWII.

Employers have added an average of 195,000 new jobs per month to payrolls since May. That in turn has ratcheted down the nation’s unemployment rate to 4.3 percent, well below the level most economists considered full employment just a few years ago. In many cities, the unemployment rate hovers near a rock-bottom 2 percent.

Despite evidence of labor shortages in key hard-to-hire healthcare and tech roles, average U.S. wages haven’t picked up much. According to Glassdoor’s latest Local Pay Reports, median base pay for full-time workers rose just 2.0 percent from a year ago in August. That’s up from last month’s 1.7 percent revised pace, but down sharply from the more than 3 percent pay growth we recorded back in January.

This Friday, we’ll be watching for signs of a pickup in wage growth to around 2.6 percent from a year ago, up slightly from the 2.5 percent pace we’ve seen recently in the monthly BLS survey.

A (Mostly) Bullish Outlook

Aside from sluggish pay growth, it’s hard to find any sign of weakness in the labor market today.

Hiring by employers remains as bullish than ever. The most recent BLS survey of job openings set an all time record with 6.16 million open jobs as of June. That same survey showed the pace of layoffs today is near the lowest on record. And the pace of hiring to fill unfilled jobs is nearly back to the healthy level reached before the last recession.

A second strong indicator of a healthy job market comes from the small number of Americans filing for unemployment insurance this summer. For the week ending August 19, there were just 234,000 new claims for unemployment benefits. That historically low number reflects how few companies are laying off employees today — good news for workers looking for job security.

When it comes to real-time indicators of the labor market, weekly claims for unemployment insurance are about as good as it gets from the federal government. As of late August, the good news for American workers is that there’s no sign of a slowdown in sight.

Watching the Yield Curve

However, there are still some clouds on the economic horizon. In recent weeks, several large U.S. banks issued warnings that a possible recession is around the corner. Should job seekers and employers be alarmed?

The short answer is: Probably not. Academic research shows that forecasters — both private and government — are notoriously bad at predicting recessions. According to researchers at the Federal Reserve Bank of San Francisco, “The evidence is that it is extremely difficult to predict when recessions will begin.” Although recessions are an inevitable part of the business cycle, the timing is mostly random, and recent warnings of an impending slowdown should be taken with a grain of salt.

However, that raises an important question: Where’s the best place to look in the data for evidence that a recession is coming?

While no indicator is perfect, one of the most reliable signs that the economy is heading into a downturn comes from the so-called “yield curve.” It’s a chart showing the current yield on U.S. Treasury bonds of different maturities, ranging from one month to 30 years. Normally it slopes upward — investors usually require higher returns for having investment dollars tied up for a longer time.

But historically, the yield curve often flips upside down or “inverts” just before recessions. Why? When a downturn is imminent, big investors push money away from risky stocks into safe, long-term 30-year Treasury bonds as a way of weathering the oncoming economic storm. This bids up the price of long-term bonds and pushes down the yield, often below that of short-term Treasuries. That makes the yield curve slope downward — a sign that big investors are bracing for a storm.

History shows that inverted yield curves often precede recessions. According to researchers at the Federal Reserve Bank of New York, “[t]he yield curve has predicted essentially every U.S. recession since 1950 with only one ‘false’ signal, which preceded the credit crunch and slowdown in production in 1967.”

What’s the yield curve look like today? As of late August, it remains upward-sloping as usual. Until that changes, watch for a U.S. economy that continues as strong and healthy as ever.

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.