Why Economists Will Be Watching Wages & Bellwether Industries in December’s Jobs Report

Indeed Chief Economist Tara M. Sinclair will be watching wages, key industries and workforce participation rates in December's Jobs Report.

Later this month, the Federal Reserve Open Market Committee will meet to determine whether or not to raise interest rates in the US—likely ending a seven-year streak of rates in the zero to .25% range.

In December 2008, rates were brought down as low as they can feasibly go to offset the effects of the Great Recession. At the time, the country was losing jobs at a quick pace, shedding almost 800,000 jobs in just January 2009 alone (the largest loss of jobs over that time period since 1950). In order to jumpstart the economy, the Fed lowered interest rates so banks could more easily lend to one another, businesses and individuals.

This year, we’re in a decidedly more stable place. Among other promising indicators, there were 5.5 million job openings in September according to the latest available data from the U.S. Bureau of Labor Statistics, just shy of the record-setting number of openings from July. Furthermore, the unemployment rate now sits at 5.0%, a rate consistent with the Federal Reserve’s estimates of full employment. These positive signals have led Fed officials to hint at a interest rate hike.

But the economy isn’t necessarily out of the woods yet, and economists will be closely watching this Friday’s Jobs Report—the last of the year and the last before the crucial Fed meeting. While it would take a big surprise in this month’s jobs figures to delay an increase in interest rates, here are the things I’ll have my eye on:

Are labor force participation rates increasing?

Forecasters predict that total nonfarm payroll employment will increase by 190,000 in November, and the unemployment rate will be essentially unchanged at 5.0%. While this would be lower than October’s surprisingly high numbers (271,000 jobs were added that month), it is consistent with the average over the last three months. In general, this is a strong showing in a labor market that only needs about 90,000 jobs growth per month to accommodate new entrants.

But the assessment of that strength is based on an historically low labor force participation rate of just 62.4%. This rate is much lower than was predicted before the recession, suggesting that many people who lost their jobs have yet to find employment again and have given up looking.

We’re watching for an increase in the labor force participation both to understand how much growth is needed and how much is possible—if more people don’t come back into the labor force then employers may have a more difficult time filling their positions. An increase would suggest a truly strong labor market.

How are key industries performing?

Indeed’s October Industry Trends Report showed strong growth in job postings across a wide range of sectors, and we’re expecting that growth to continue.

Over the coming months we’ll be watching construction and manufacturing, which were both hit hard by the Great Recession and are also particularly sensitive to Federal Reserve rate movements. By increasing rates in December, the Fed hopes to sufficiently slow growth while still allowing continued expansion of the economy. Construction and manufacturing will be bellwethers for future Fed actions and impact—if these industries fare well, it will mean the Fed policies have achieved the right balance.

We’ll also be watching mining, where employment peaked in December of 2014 and has been trending down due to lower global commodities prices. And finally, the healthcare industry will be an area to watch for consistent strength in the short and long run.

What’s happening with wages?

Wages will be the most interesting area to watch in this week’s Jobs Report. After years of stagnant wage growth, we finally saw the increase we were looking for in last month’s numbers. But that is only one month of data and these numbers can be volatile.

We can measure employer demand through job postings on Indeed, and because we see that demand continuing to grow, we expect wages to increase as well. When talent is in high demand, there is pressure on employers to incentivize potential employees with higher pay, which according to Indeed research is still the number one factor attracting people to a new job.

Inflation rates are currently low, which means that hourly earnings inching upwards would be a good sign of a continued tightening in the labor market—even if it were a small movement of 2.6% over the year (from 2.5% last month). Moving into 2016, we’re looking to eventually crack 3.0% which we haven’t seen since 2009. The Fed’s rate hikes may slow this rate, but if they keep inflation low then more of the wage gains would go into workers’ pockets.