In February, the US economy added a strong 242,000 jobs, and according to the current level of employer demand on Indeed, there’s room for that sort of number again in March. We’ll find out the preliminary estimate in this Friday’s jobs report from the federal government, but what needs to happen in order for us to hit those high marks? Here are two key conditions that could drive the growth we’re hoping for:
1. More people need to come back into the labor force
You’ve probably heard me (and many other economists) say this before, but employment numbers won’t grow by significant margins until more people come back into the labor force. Even though we saw a slight increase in this figure last month, up to 62.9% from 62.4% in September, many forecasters do not expect to see another boost this month.
While much of the decline in the labor force participation rate has happened in the wake of the 2008 financial crisis, the rate has actually been on a downward trend since reaching a peak at the start of the millennium. We’re seeing a big generation, the baby boomers, beginning to retire, which means that even as we recover from the Great Recession, there may be fewer working-age people in the population to draw from.
Bringing more people into the labor force requires identifying the right incentives. Training programs and apprenticeships, for instance, are one way some employers have been able to attract job seekers.
2. Wages will need to increase
Of course, one crucial incentive for workers is wages. And according to job demand alone, we should see wages increase this month. Indeed’s industry trends show job postings growing in industries across the board—and notably in key bellwether industries such as construction, reflecting a continually strong labor market poised to add jobs and raise wages.
But that’s not the trend from the past year: even as the economy has recovered and job openings have increased, we have not seen salaries grow apace. The result of this slow growth? Many individuals aren’t experiencing the benefits we would expect from a robust economy.
Meanwhile, inflation trends show that prices are finally ticking up, yet another sign employers can’t hold out on raising wages if they want to keep up with the cost of living.
Below is a round-up of forecasts for Friday’s key indicators along with a few areas where we see potential for the numbers to beat estimates.
|Nonfarm Payrolls (M/M Change)||242,000||210,000||Bullish|
|Unemployment Rate (Level)||4.9%||4.9%||Same|
|Participation Rate (Level)||62.9%||Bullish|
|Average Hourly Earnings||-0.1%||0.2%||Bearish|
The consensus looks in-line with our expectations of relatively strong job gains, though there is potential for an upside surprise again this month based on employer demand.
I expect positive wage growth in the report—unlike the negative anomaly in February—but I don’t expect it to be too much stronger than the recent pattern as we saw more people entering the workforce last month, meaning less pressure to raise wages.
We continue to look for more gains in labor force participation as there appears to be more people who could be brought in.