WASHINGTON (MarketWatch) — The U.S. labor market has gotten off to a galloping start in 2017 with nearly half a million people finding jobs, but the reins on hiring could be pulled back in March. Here’s what to watch in the government’s employment report due on Friday.
The 200,000 under
Economists polled by MarketWatch forecast an increase of 185,000 jobs last month, down sharply from a preliminary 235,000 gain in February and 238,000 in January.
Why an expected slowdown? Unseasonably warm weather boosted employment in outdoor industries such as construction during normally slow winter months. The number of new jobs created tends to drop off temporarily in the spring owing to seasonal adjustments performed by government economists.
A similar pattern occurred in 2016 and 2012.
The 200,000 over
Some evidence suggests the economy could generate 200,000-plus jobs for the third month in a row, a feat last accomplished in the 2015 fourth quarter.
What’s helped the economy is a rebound in hiring among manufacturers and energy producers after they cut jobs in 2016. The bustling construction industry has also been hiring more rapidly.
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An employment report, meanwhile, from giant payroll processor ADP reported a robust 263,000 increase in private-sector jobs last month.
One big caveat: The ADP estimate sometimes can vary quite dramatically with the U.S. Labor Department’s report. In May 2016, for instance, the government initially reported a 38,000 gain in new jobs vs. a 173,000 reading from ADP — a 135,000 difference.
A head(line) fake
A solid increase in hiring is all well and good, but the biggest number in the jobs report for investors is the level of wages. Hourly pay has been rising steadily after bottoming out in early 2012, a reflection of a tight labor market that’s forcing companies to sweeten the pot for employees.
Hourly pay increased at a 2.8% pace in the 12 months ending February 2017, just a tick below a postrecession high. With more and more companies complaining about a shortage of skilled labor, wages are expected to continue to rise and top 3% annual growth.
In especially good economic times, wages usually rise 3% to 4% a year.
The main U.S. unemployment rate is already extremely low at 4.7% and it’s unlikely to make the same kind of dramatic declines as it did in the past few years. More attention is being paid to the U6 or “real” unemployment rate to figure out how much “slack” still exists in the labor market.
The U6 rate tallies up the unemployed and includes those who can only find part-time jobs as well as people who recent gave up looking for work — so-called discouraged workers.
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In February, the U6 rate dropped to 9.2% to mark a nearly nine-year low. Yet the U6 is still notably higher than the 8% rate that prevailed right before the onset of the Great Recession in late 2007.
What that suggests is the economy still has some slack — people willing and able to work if the job fits and the wages are attractive enough. Enough slack could even keep wages from getting out of hand and stoke an unwanted bout of inflation.