What to Watch on Jobs Day: Wages and the Labor Force
When the February Employment Situation report is released tomorrow, I will be looking at three particular numbers: nominal wage growth, labor force participation, and the unemployment rate. Yes, I will also be looking at the overall jobs numbers, long-term unemployment, and everything else, but I am watching these three gauges in particular for indications of the strength of the recovery’s impact on workers.
While the economy has continued to add jobs, the most watched indicator—particularly by Federal Reserve policymakers and those who monitor the Fed’s actions—is wages. Nominal (non-inflation adjusted) average hourly wages for private sector workers has been rising slowly, at around 2 percent, the last several years. There has been lots of talk of when the Federal Reserve should raise interest rates in order to keep inflation at bay, even though, in this economic environment, there is no need to even begin talking about setting a date to slow the economy down. Wages are simply showing no signs of producing inflationary pressures.
We track nominal wage growth every month, and it’s abundantly clear that this indicator is far below target. What’s more, slowing down the economy prematurely would be especially deleterious to lower-wage workers and to workers of color. We need to give the economy a real chance to recover, and give workers a chance at decent wage increases, before we slow the economy down by raising interest rates. Remember that wage growth has been sluggish for many years, so in order for workers to make up that lost ground wages needs to start rising at a good clip.
The second indicator to watch, which has just recently showed signs of a turnaround, is labor force participation. The labor force is still down by 5.8 million “missing workers.” These workers aren’t counted among the unemployed, because they haven’t actively looked for work in the last four weeks, but they are likely to return to the labor force as the economy recovers. Last month, we saw some signs of that return, as the number of missing workers fell and the unemployment rate rose slightly.
Yes, the fact that the unemployment rate—the third indicator to watch closely tomorrow—rose last month was actually an encouraging sign, as it means that potential workers see hope for themselves in the labor market and have started to look for jobs.
I will continue to be tracking those relationships—falling missing workers, rising labor force participation, and the effects on the unemployment rate—when the jobs numbers come out. Check back here for more analysis.