Friday’s Job Report: Should We Watch for a Recession?

November 2, 2015

With two consecutive months of weak job growth and a dismal third-quarter GDP report, a growing number of economists are on the lookout for recession. What’s next for the job market? Here’s what we’re watching for in Friday’s jobs report.

What to Watch for Friday: The Wall Street Journal’s consensus forecast is for roughly 190,000 new jobs in October. However, forecasters have dramatically missed the mark recently, overshooting job growth by 44 percent in September and 54 percent in August. Here are our predictions for Friday’s report:

  • Non-farm payrolls up 160,000 jobs.
  • Unemployment rate steady at 5.1 percent.
  • Labor force participation rate steady at 62.4 percent.
  • Average hourly wages up 2.0 percent from one year ago.

Signs of A Slowdown
In the midst of gloomy economic reports, it’s easy to take for granted the current economic expansion. Last month marks 60 consecutive months of U.S. job gains. That’s five years without a single month of job losses—the longest stretch on record. The last time we witnessed a stretch like the present was more than a quarter century ago in the late 1980s, when job growth was positive for 48 consecutive months. In many ways, today we’re experiencing unprecedented stability, moderate growth and low inflation.

But all expansions eventually end. Since WWII the average length of time between recessions has been about 58 months. October marks 76 months for the current expansion—well beyond the norm. Along with several weak economic reports in recent months, this realization has put economists on alert for a lurking recession.

Factors to Watch
There are four main factors today pointing toward a slowdown. First, revenues are falling sharply among S&P 500 companies for the first time in years. Dismal quarterly earnings for America’s biggest companies have led some analysts to conclude a pullback is already underway in some industrial sectors. If recession is really around the corner, plummeting revenue reports will indeed be among the early indicators.

Second is the broader slowing of the economy. During the most recent quarter, GDP growth slowed to a paltry 1.5 percent annual rate, down from 3.9 percent earlier this year. The slowdown reflects production cutbacks, declining business investments in buildings and oil platforms, as well as slowdowns in manufacturing as sales to foreign customers have fallen due to the strong U.S. dollar. GDP growth is volatile from quarter to quarter, but a 1.5 percent growth rate is low enough to raise eyebrows among economists.

Third is the global slowdown in China and Europe. All countries today are linked in some way through a complex global web of investment and trade. China’s economy has seen its growth rate falling below 7 percent for the first time since the 1990s. The Euro-zone economies are losing momentum as well, creaking along at a 1.2 percent growth rate. A slowdown among major trading partners puts an anchor on U.S. growth and employment.

Finally, the last two month’s job reports have fallen flat. Non-farm payrolls fell dramatically short of economists’ predictions in August and September. This continues a general slowing trend. Payrolls are growing by 198,000 per month in 2015, down from the blistering 260,000 pace of 2014. Labor markets are a lagging indicator of recession—layoffs are a last resort for employers—but a weak jobs report Friday could fuel speculation that a U.S. slowdown is on the way.

Some Positive News
On the other hand, the poor track record of economists who’ve attempted to forecast recessions in the past speaks for itself. It’s far too early to ring the recession bell. Job openings today are near all-time record highs, weekly unemployment claims are near historic lows, and America’s 5.1 percent unemployment rate is the envy of the world. Putting aside speculation about what’s to come, nearly every sign today points to a job market that remains the strongest we’ve seen in a generation.

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.