Even if Friday’s jobs report is great, don’t get too excited

By Vaidyanathan (“Venky”) Venkateswaran

The labor-market situation has become more uncertain and will likely push the Fed towards making its monetary policy adjustments even more gradually. Even if Friday's report surprises on the upside, the picture is unlikely to change drastically.

Economists expect the jobs report on Friday to show that 180,000 jobs were added to nonfarm payrolls in July, according to Thomson Reuters. That's a distinct improvement from the shocking 11,000 jobs added in May but well off from the average rate for the U.S. economy in the previous two years, which is around 240,000.

Is this slowdown a symptom of broader macroeconomic weakness?

Looking at other labor-market indicators does not provide a clear resolution. Some of them (such as initial and continuing unemployment claims) have been low and stable in the past few months, while others (such as the percentage of workers reporting they are working part time for economic reasons) show evidence of cooling off. A useful summary indicator is the broad-based aggregate Labor Market Conditions Index published by the Federal Reserve. This series has shown a decline every month since January, lending some credence to the weakness story.

The headline numbers also mask a much more dramatic slowdown in some parts of economy, most notably in the goods-producing sectors. This is being offset by steady growth in the service sector, so the aggregate numbers still show net job gains. During the first six months of 2016, employment in the goods-producing industries was almost flat (and even contracted by some measures) while private service-producing industries expanded payrolls by an annualized rate of 2 percent, roughly on par with the growth rate in 2014 and 2015. But, even within the service sector, there are large differences across industries.

Read full article as published by CNBC.

Vaidyanathan Venkateswaran is an Assistant Professor of Economics.