What the September Jobs Report Will Tell Us
(Bloomberg Opinion) -- The biggest uncertainty of the employment report to be released on Friday won't be whether the U.S will maintain its robust pace of job creation for another month. It most likely will. Rather, the lack of certitude concerns the answers to two related questions: Will the data solidify the gains in wage growth recorded for August, and will the combination of more jobs and higher pay bring more people back into the labor force?
Here's what the last report showed:
• Monthly job creation came in at 201,000 for August, in line with the 12-month moving average of 196,000, and higher than the consensus market expectation. As a result, the labor market maintained a pace well above what history would predict so late into the economic cycle.
• The unemployment rate remained at a historically low 3.9 percent, and the number of unemployed (6.2 million) was once again lower than the reported number of vacancies.
• After a rather prolonged lackluster performance, wage growth moved up to 2.9 percent from a year earlier.
• Yet discouraged workers did not re-enter the labor market in a meaningful manner, which is historically inconsistent with the improving picture for jobs and vacancies. Rather than increase, both the labor-force participation rate and the employment-to-population rate fell by about 0.2 percentage points, to 62.7 percent and 60.3 percent, respectively.
In the lead-up to the September jobs report, the ADP monthly payroll estimate for September released Wednesday showed a gain of 230,000, exceeding the estimate of 184,000. That is consistent with other recent data suggesting that the U.S. economy continues to build momentum. The process is being powered by the trifecta of the corporate, household and government sectors. As such, markets are expecting monthly job creation for September of 184,000, once again above the historical level for this stage of the cycle.
The big uncertainty relates to wage growth and labor-force participation. By beneficially impacting the demand and supply sides of the economy -- both on a standalone basis and through their interaction -- they influence actual and potential economic performance. They also impact monetary policy, including the degree of risk for a policy mistake down the road.
Economists’ forecasts for these metrics have tended to be more often wrong than right for quite a while. Yet two statements can be made with a relatively highly level of conviction.
If not this month, then almost certainly in the ones that follow, wage growth will go above 3 percent. This would be consistent with a host of other macro indicators, as well as partial micro data (such as Amazon’s decision this week to increase its minimum wage to $15 an hour). Accelerated wages would be part of a broader set of forces pushing inflation up, though that wouldn't have a dramatic effect for the economy or the Federal Reserve.
The prospects for labor-force participation will remain uncertain. Due to accelerating technological changes that alter not just what we do but also how we do it -- developments in machine learning, mobility and big data, for example -- there is an unusual degree of fluidity in the way the economy functions. This has changed, and will continue to change, the labor intensity of economic cycles. It also amplifies the economic and social costs associated with persistent skill mismatches, lagging educational reform, and the still too-slow spread within the corporate sector of labor tooling and retooling program programs (including through wider use of apprenticeships).
The September jobs report will likely reinforce the notion of a strong U.S. economy that, rather than converge down to the slowing trend experienced by other advanced countries and several emerging ones, is pulling further ahead. It may also suggest that growth is getting somewhat more inclusive as wages increase faster. It will not answer the deeper structural and socially important question of how to reincorporate those who are marginalized and alienated into the productive and expanding economy.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. His books include “The Only Game in Town” and “When Markets Collide.”
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