As both Washington and Wall Street gear up for the monthly employment report, here are three things to keep in the back of your mind.
First, do not look for Friday’s data release to signal a material change in the overall conditions of the country’s labour market. The easy gains are now behind us, be they the endogenous cyclical improvements or what the Federal Reserve has been able to deliver acting essentially on its own.
It is also harder sledding now because some of America’s worrisome problems are becoming more deeply and stubbornly embedded in the structure of the labour force. This is particularly true for long-term and youth unemployment; and it is highly regrettable and worrisome.
Second, the headline numbers will tell us a lot less about the future course of the Federal Reserve, currently the most-engaged and influential economic policymaker. Earlier this month, Fed Chair Janet Yellen officially confirmed what some had anticipated: that, in determining future policy actions, the Fed was moving away from its (“U3”) unemployment threshold in two notable ways: first, by embracing a more holistic quantitative and qualitative assessment of the labour market; and second, by placing greater emphasis on countering an inflation rate that is too low.
Third, these highly-anticipated monthly data no longer serve as good leading indicators of future economic conditions. It is not just about weaker policy signals. In addition, the jobs report no longer provides as good a pointer for the economic future.
For a while, the information content of the jobs report had evolved from providing lagging insights to also serving as an important leading indicator. Today’s employment conditions, however, no longer act as a powerful driver of overall economic and political developments. That role has been transferred — to business investment when it comes to the considerable economic upside, and to geo-political risk on the downside.
Taken together, these three factors point to monthly data that will confirm that, while gradually improving, America continues to face considerable challenges in the functioning of the labour market. Specifically, it remains stuck, hopefully just for now, in an unsatisfactory low-level equilibrium.
Despite continued human suffering associated with this unfortunate situation, the immediate implications for both policies and the economic outlook are now harder to deduce and forecast. What remains easy to predict, however, is the tone of the press releases that the two political parties will rush to issue shortly after 8:30 am (eastern) on Friday: one will welcome the improvement, albeit gradual, in labour market conditions; the other will lament the lack of progress.