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Jobs Report: What to Watch For Steady U.S. Job Growth Sets Stage for Fed to Raise Interest Rates
(about 4 hours later)
At 8:30 a.m. Eastern time, the Labor Department will report the figures on hiring and unemployment in February. Employers added 235,000 workers to their payrolls in February, the government reported on Friday, a hefty gain that clears the path for the Federal Reserve to raise its benchmark interest rate when it meets next week.
After job gains of 227,000 in January, analysts are expecting another strong showing, with hires topping 200,000. Although monthly reports from the private payroll processing firm ADP often do not correspond to the Labor Department’s figures, ADP’s unusually robust report of 298,000 jobs on Wednesday led several economists to increase their initial estimates. The unemployment rate is expected to dip back down to 4.7 percent. A disappointing 0.1 percent increase in average hourly wages in January should pop back up to 0.3 percent in February, analysts predict, helping push the 12-month growth rate back up. The official jobless rate fell to 4.7 percent, from 4.8 percent in January, while average hourly earnings grew by 0.2 percent in a report that overlaps with President Trump’s first full month in office.
This is what you should watch for: “They’re ready to go,” said Diane Swonk, founder and chief executive of DS Economics, referring to the central bank’s expected vote next week to raise rates from their historically low levels. The overall economic momentum and optimism was given an extra push by February’s unusually warm weather. Almost a quarter of the jobs, about 58,000, came from construction alone, Ms. Swonk noted, and manufacturing also bounced back.
This is the first jobs report reflecting an entire month of President Trump’s term and the last one before the Federal Reserve’s policy-making committee meets next week. Wall Street will be scrutinizing the estimates for their potential impact on the Fed’s benchmark interest rate. Janet L. Yellen, the Fed chairwoman, made clear in a speech in Chicago last week that the central bank was on track to raise rates when its members gather. While some analysts said monthly gains of less than 100,000 jobs could cause the bank to pause, most think there is little chance that anything in February’s report from the Labor Department could slow the upward march. Over the past three months, including revisions announced Friday, monthly job growth has averaged 209,000, while year-over-year wage growth jumped up to 2.8 percent.
Whatever the net increase in jobs in February, it is doubtful that the federal government did much of the hiring. Mr. Trump announced a federal hiring freeze after taking office. Some analysts expect public payrolls, also subject to attrition, could be down by as many as 10,000 jobs. Although the economic anxiety that helped put President Trump into the White House remains, the official jobless rate is near what the central bank considers full employment — a threshold where, in theory at least, everyone who wants a job at the going rate can find one.
Recruiters and employers have repeatedly said that their biggest challenge is hiring qualified workers. Not surprisingly, those with the most skills and education have the easiest time finding a job. Marc Cenedella, founder and chief executive of Ladders, a career site that advertises higher-wage jobs, said he has seen a big increase year-over-year in demand for health care administrators, pharmaceutical researchers, and sales and customer service technology managers. At the same time, jobless claims are near a 44-year low, the stock market is surging, and consumer spending is growing, bolstering the case for those who argue the economy is strong enough to withstand a rate increase.
But even less-skilled workers are in demand. Year-over-year wage gains for store managers and cashiers, for example, were twice the national average, said Andrew Chamberlain, chief economist at Glassdoor, the career website. Scott Anderson, chief economist at Bank of the West, noted that February’s figures could be getting an added boost from the unseasonably warm temperatures, which allowed construction and other weather-sensitive projects to go forward. The overall number of jobs is important, but so are the kinds of jobs created. Recruiters and employers complain that qualified workers are scarce, pushing them to raise wages, strengthen benefits and offer cushier amenities at the office. “There is a war for talent,” said Lauren Griffin, senior vice president at Adecco Staffing USA. “We’ve got people in orientation classes and they get up and leave because they’re contacted about another job that might be more money.”
Where you live and what you do can determine how bright your economic prospects are. Even lower-skill workers in some sectors are finding themselves in more demand. The year-over-year wage gains for store managers and cashiers, for example, were twice the national average, said Andrew Chamberlain, chief economist at Glassdoor, a career website.
While Friday’s report won’t include a geographic breakdown, those who reside in or near larger cities are receiving the most gains, despite high housing costs. Large metropolitan counties have seen more than twice the annual wage growth of non-metro areas, according to the latest figures from the Bureau of Labor Statistics. Bigger paychecks are something that most Americans, after years of stagnant wage growth, are particularly eager to see. The Federal Reserve, too, has been waiting for an increase, but it is also wary of wages rising too fast. The board’s members want to head off incipient inflation and so have begun to slowly raise rates, which makes borrowing and risk-taking more expensive. At the same time, the Fed wants to avoid putting the brakes on job hiring, especially because the benefits of the eight-year-old recovery have been so unevenly distributed.
“Higher-wage jobs might be following educated young workers, who are increasingly living in dense, urban neighborhoods as other demographic groups move to the suburbs,” said Jed Kolko, chief economist of the jobs site Indeed. Balancing those two goals is tricky.
If you or someone you know is having trouble finding a job, that could be one reason. A broader measure of unemployment — which includes the millions of Americans who have given up looking for work altogether or are working part time but would prefer full-time jobs — dropped to 9.2 percent but is still high given how tight the labor market otherwise looks.
“The share of adults between the ages of 25 and 54 with a job hasn’t even recovered to pre-Great Recession levels, which were, in turn, far below the peaks reached in the late 1990s,” said Josh Bivens, director of research at the left-leaning Economic Policy Institute. “And most importantly, no durable and significant acceleration of wage growth to healthy levels has happened yet.”
Re-engaging men and women who have dropped out of the labor force remains a challenge. The labor force participation rate, though still below its pre-recession levels, ticked up to 63 percent, evidence that sidelined workers can still be lured back into the work force.
Where you live and what you do for work can determine how bright your economic prospects are.
Those who reside in or near larger cities are receiving the highest gains, despite high housing costs. Large metropolitan counties have seen more than twice the annual wage growth of nonmetropolitan areas, according to the latest figures from the Bureau of Labor Statistics.
“Higher-wage jobs might be following educated, young workers, who are increasingly living in dense, urban neighborhoods as other demographic groups move to the suburbs,” said Jed Kolko, chief economist at the job-search site Indeed. “Broader economic shifts also favor big cities: The occupations projected to grow tend to be more urban, while shrinking sectors like manufacturing and farming tend to be located outside large metros.”
That is disappointing for people with longstanding ties to smaller, more rural communities. “A lot of this has to do with mobility,” said Steven W. Rick, chief economist at CUNA Mutual Group, an insurance company. “People are going to have to move where the jobs are and not expect the jobs to come where they are.”
If some are in the wrong place, others lack the right skills for an economy heavily geared toward information and services. “There is a certainly still a talent shortage out there,” said Michael Stull, senior vice president at Manpower North America, a staffing agency. The firm’s annual survey of 2,200 hiring managers showed that 46 percent reported they had difficulty filling job vacancies in 2016, up from 32 percent in 2015.
There are potential headwinds. Dissension among Republicans and unpredictability about President Trump’s course in several policy areas could constrain the hiring outlook. “Uncertainty means you don’t pull the trigger right now,” Ms. Swonk said.
The future of the Affordable Care Act and a possible replacement is making hospitals and community health centers cautious about adding to their staffs, she explained. And a strong dollar and a potential backlash against the White House’s travel ban could slow tourism, and thus hiring in the sector. Mr. Trump’s across-the-board hiring freeze on federal government jobs dragged down overall job growth, and any additional federal cutbacks are likely to further depress those numbers.
The uncertainty extends to prospects for tax cuts. Some Wall Street analysts, expecting delays, have pared down their growth forecasts for 2017, after recently raising them.
For the moment, though, optimism about the job market remains strong.
“The economy is riding a wave of bullish sentiment postelection,” Mr. Chamberlain of Glassdoor said. “We’re seeing strong labor demand across the board and no sign of slowing right now.”