The monthly U.S. jobs report is among the most eagerly awaited data releases, and for good reasons. It provides a snapshot of the underlying health of the economy that also speaks to political, social and institutional well-being.
The numbers for February, which will be released Friday, could also shed light on the speed and orderliness of important ongoing transitions in the economy, markets and policy.
Viewed in most economic terms, the data contained in the jobs report highlight both supply and demand issues.
The evolution of unemployment and underemployment, as well as the labor participation rate, feed directly into assessments of the economy’s production capacity and its “safe” speed, or the sweet spot between “overheating” and “slack.” Details of employment conditions of different segments of the population are inputs for assessments of the structural evolution of the economy. And, on the demand side, jobs and wage growth are significant contributors to consumption, which is the major driver of economic activity.
As economic conditions often are an important factor in election results, all these variables also have political implications. Add to this the social insights offered by the evolution of the monthly data on employment by race, age and education level.
As it turns out, at this specific economic moment in time, the report can also help assess the prospects for three medium-term transitions:
- Economically, away from the prolonged “new normal” of low and insufficiently inclusive growth and in favor of a higher level of sustained economic prosperity that is more broadly shared.
- Financially, away from protracted suppression of market volatility and liquidity-driven rallies, and toward less distorted asset prices and asset allocations that are better underpinned by economic fundamentals.
- In the policy domain, away from excessive reliance on unconventional (and experimental) monetary measures and back to a normalized policy stance that risks less collateral damage and fewer unintended consequences.
All three evolutions are vital to longer-term economic well-being and financial stability. And while they all have been gaining traction, they’re also navigating market uncertainties about global trade relations and economic policy management.
Here are the kinds of numbers for February and subsequent months that would increase the probability of successful, orderly and timely transitions:
- Solid job creation averaging about 120,000 per month or higher.
- The growth in average hourly earnings rising from 2.9 percent on an annual basis to around 3.5 percent.
- The number of hours worked staying constant or increasing.
- A gradual increase in the job participation rate, which remains on the low side, at 62.7 percent of the U.S. population.
- A continued reduction in the unemployment rate for young people (currently 13.9 percent), African Americans (7 percent) and Hispanics (5 percent), as well as the long-term unemployed (1.4 million).
Such a mix of indicators would not only enhance the health of the labor market, improve production capacity, counter concerns about debt burdens, and help to ensure that the benefits of growth and economic prosperity are more widely shared. They would also facilitate further progress on the Federal Reserve’s “beautiful normalization” of monetary policy while supporting financial asset prices with stronger economic fundamentals.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He was chairman of the president's Global Development Council, CEO and president of Harvard Management Company, managing director at Salomon Smith Barney and deputy director of the IMF. His books include "The Only Game in Town" and "When Markets Collide."
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