BLS Jobs Report Preview: What Does Employee Sentiment Say About a Coming Recession?
On Friday, we’ll get the latest update on the U.S. job market from the Bureau of Labor Statistics. With markets shaken and recession chatter growing in volume in August, this Friday’s report will be watched closely for reassurance that the labor market is still healthy. In this jobs report preview, we’ll review our predictions and discuss what Glassdoor data has to say about the possibility of a recession in the U.S.
August Jobs Report Predictions
Here’s what we’re expecting in the August jobs report:
- 170,000 new jobs added to payrolls;
- Unemployment rate steady at 3.7 percent;
- Average hourly wages up 3.2 percent; and
- Labor force participation up to 63.1 percent.
We expect a solid report in August, reflecting a healthy but slowing labor market. While the yield curve points to a future recession and trade tensions with China wreak havoc on markets, the economic fundamentals of the labor market remain strong and we expect current growth to persist.
Glassdoor’s latest Job Market Report also shows a near record high level of job openings in August, which signals continued employer confidence in the economy. Additionally, while the Census Bureau only expects to hire 40,000 workers this year for the 2020 Census, we do expect this hiring to provide a small bump to job gains through October.
Employee Confidence as a Recession Indicator
While there are many broad economic indicators that measure sentiment in the economy, at Glassdoor we are able to gauge employees’ confidence in their employers’ business outlook over the next six months. Academic research shows that Glassdoor’s business outlook measure can be a powerful predictor of future earnings, bad company news and lending decisions.
In the chart below, we show an index for employee confidence, measured as the three-month moving average in percentage of Glassdoor reviews reporting a positive business outlook minus the percentage reporting a negative business outlook. The economy-wide average in gray shows an upward trend from 2015 until the peak in October 2018. After that, this measure of employee confidence has fallen, dropping 3.1 points year-over-year in August, signaling that workers are growing less optimistic about their employers’ business prospects amid growing recession chatter.
The chart also shows several example industries where trends have diverged. In construction & real estate, for example, sentiment has been elevated and remains strong despite mixed signals in the housing market. Information technology has moved in line with the national average but is more positive overall.
Manufacturing and transportation & logistics, industries highly susceptible to the negative impacts of a trade war, have fallen precipitously. Employee confidence in manufacturing has fallen 6.4 points year-over-year, with the decline starting in July 2018 when List 1 tariffs began being enforced by the federal government. Transportation & logistics weathered the trade storm somewhat longer, buoyed by strong consumer spending and anticipatory inventory build-up, but confidence has taken a turn for the worse in recent months. The escalating trade war with China risks pulling employee confidence down further, especially if it spills over into fears of a broader recession.
New Businesses Face a Trial by Fire
The current economic expansion passed the record for longest in American history in July, reaching its tenth birthday. One side effect of the long recovery is that many new businesses have been founded in the intervening years. According to Bureau of Labor Statistics data, almost half (44 percent) of U.S. firms today haven’t experienced a recession since being founded. A historically long economic expansion does raise questions of how prepared American businesses, especially newly-founded ones, are for the next recession.
Although many newly founded firms haven’t experienced a recession, they do account for a disproportionately smaller share of U.S. employment, namely 19 percent or 23.4 million American workers. Employees at these untested firms could be at higher risk of losing their jobs when the next recession arrives.
Revisions Make March Jobs Numbers a Lamb, Not a Lion
This month, the Bureau of Labor Statistics released preliminary estimates to its annual benchmark revisions. BLS estimated a whopping -501,000 revision in employment for March 2019. While the final benchmark revisions will not be released until February 2020, a revision this large would be the largest downward revision since 2009. That being said, the preliminary data released by BLS doesn’t reveal how the revised employment figures are distributed across 2018 and 2019. Additionally, the revisions don’t tell us how strong the labor market will be moving forward.
For insight into how we expect this to affect upcoming jobs reports, we can examine Glassdoor data on job openings in the American economy. Data from Glassdoor’s Job Market Report suggests that March 2019, the month that the BLS preliminary revisions are estimated for, experienced a trough with almost zero job openings growth. Since March, growth in job openings has re-accelerated and the level of job openings is near record highs. Our early data from August suggests that while job openings growth was slower, the level of open jobs is still consistent with a healthy and robust labor market.
While job openings don’t always move one-to-one with employment gains, they are a forward-looking indicator, measuring employers’ future expectations about the economy. As such, there are no signs yet that employment gains will flip to negative in the near future.
Ultimately, Glassdoor data suggests that recession fears are not an immediate concern. Even though employee confidence has dropped 3.1 points year-over-year, it still remains elevated and positive. Similarly, growth in job openings on Glassdoor has re-accelerated after stagnating in March, signaling that downward BLS revisions may not be as concerning as initially believed.
As recession chatter increases, it’s important to remember what’s at stake—the longest economic expansion on record presents more risks to the 44 percent of American businesses that have never undergone a recession, as well as the 23.4 million Americans employed by these companies.
Friday’s August jobs report will be scrutinized for evidence of an impending recession, but we don’t expect the report to signal doom and gloom. While specific sectors are suffering under the trade war, the labor market overall remains fundamentally healthy, which should be reflected in positive job gains and a continuation of current trends in wage and employment gains.