What to look for in Friday’s jobs report

Bloomberg NewsMay 1, 2014 

The monthly U.S. jobs report will inevitably attract a lot of market attention, economic reporting and political commentary. Allow me to pile on pre-emptively with four pointers:

1. Pay more attention to the details than to the headline numbers.

Consistent with past behavior, markets will focus on the monthly change in nonfarm payrolls and the unemployment rate, with immediate reactions depending in large part on whether consensus estimates – currently 215,000 for net new jobs and a slight decline in the unemployment rate to 6.6 percent – are validated. Yet as popular as these numbers are, their information content is not as good as it used to be, and no longer commensurate with how they are treated.

Policy makers – particularly at the Federal Reserve, which is shifting to a more holistic assessment of the labor market – will focus more on the details of the report. Two metrics are notable: long-term unemployment and the “U6” unemployment measure, which captures part-time joblessness and those who want work but aren’t actively searching for it. Both have remained at stubbornly high levels. As of March, some 3.7 million people, or 36 percent of the unemployed, had been out of work for more than six months. U6 unemployment stood at 12.7 percent.

2. If you must focus on the headline numbers, remember some important qualifiers.

To reinforce America’s economic recovery, monthly job creation needs to be spread broadly across sectors (and, in particular, not concentrated in the sectors most affected by bad weather in previous months). More important, the unemployment rate – which counts only people who are actively looking for work – shouldn’t reflect a further decline in the measured labor force. At 63.2 percent, the share of the population in the labor force is still hovering near its lowest point in more than three decades.

3. Don’t expect the Fed to change course based on one month’s data.

Remember, the central bank’s mandate includes both employment and price stability. It would take a major change in labor market conditions to alter its current policy course. I don’t expect such a change. Moreover, as I argued on Monday, this would constitute a necessary but not sufficient condition. To alter its policies, the Fed would also need evidence that inflation is firmly heading toward, and beyond, its 2 percent target.

Because the jobs report is highly unlikely to contain big surprises, it is highly probable that Fed policy will remain on autopilot for the rest of the year. This means completing the gradual exit from the bond-buying program known as quantitative easing while holding short-term interest rates near zero and evolving its forward policy guidance.

4. Think about the future.

The jobs report will provide clues to longer-term trends that speak to us both as parents and as part of a vibrant and healthy society.

Consider the teenage unemployment rate, which stood at 21 percent in March and has remained worrisomely high for quite a while now. The longer people are unemployed at that juncture in their working careers, the higher the risk that they will become unemployable – and possibly even part of a lost generation.

Then there is the divergence in unemployment rates among those with different levels of education. In the last report, the rate for those with at least a bachelor’s degree stood at 3.4 percent, compared to 9.6 percent for those with less than a high school diploma. This disparity amplifies the self-reinforcing tendencies of inequality in income, wealth and opportunity. We'll all be worse off if we end up living in an excessively unequal society.

Mohamed El-Erian is chief economic adviser at Allianz, chairman of President Obama’s Global Development Council and the former chief executive officer and co-chief investment officer of Pimco.

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