July Jobs Report: Will We Finally See Wage Growth?

The latest numbers on U.S. jobs and unemployment are due out on Friday, August 7. What should we expect? Here are three trends we’re tracking here at Glassdoor. Wages Finally Rising? Average wages have been growing slowly for years. Before the last recession, average hourly wages were rising at around 3.5 percent per year. Today, they’re growing at an anemic 2 percent per year, a rate that hasn’t budged since late 2009. Recently, there’s growing evidence that wages are finally picking up. A recent BLS report shows a clear upward trend in real hourly wage growth. Other data show that although hourly wage growth is sluggish, those figures ignore rapid growth in employee benefits such as paid vacation and other workplace perks. The total wage picture might be brighter than it appears when looking at hourly wages alone. The number of unfilled jobs today is near an all-time record with 5.4 million jobs vacant in May, according to the BLS survey. Labor shortages in technology, healthcare and professional services are clearly putting job seekers in the driver’s seat when it comes to pay negotiations. It’s just a matter of time before this tightness in the labor market sparks broad-based wage gains, which will eventually start showing up in official BLS figures. What to Watch for Friday: Average hourly wages last month were $24.95 per hour, up just 2 percent from a year ago. We’re watching for stronger wage gains of 2.3 percent in July, rising to 2.6-3.0 percent wage gains by year-end as key labor markets continue tightening. Job Growth: Slow and Steady The most-watched figure in the monthly BLS jobs report is job growth, what economists call “total change in nonfarm payrolls.” Many job seekers today may not realize that we are in an historic period of job creation, with July marking the 58^th consecutive month of positive job growth – the longest stretch on record since 1939 when the federal government began tracking jobs data. Weak jobs numbers this winter led many economists to wonder if our six-year expansion was coming to an end. Jobs in the oil and gas industry have been hit hard by plummeting oil prices, and the strong dollar has slowed job growth at big exporting companies. But with the return to robust job growth this spring, the U.S. labor market is looking healthier now than at any time since the early 2000s. The economy has added an average of 245,000 new jobs per month over the past 12 months, and weekly unemployment claims recently hit their lowest level since the 1970s. The popular University of Michigan index of consumer sentiment is up 14 percent in July from a year ago, and their broader index of economic conditions is up nearly 9 percent. Just three industries accounted for two-thirds of the 223,000 new jobs added in June: Professional and business services (64,000 new jobs), health care (52,800 new jobs) and retail (32,900 new jobs). All signs today point to continued strength in all of these sectors. What to Watch for Friday: The consensus forecast is for roughly 207,000 new jobs in July from the Wall Street Journal’s panel of forecasters. We’re expecting a slightly lower figure of around 195,000 new jobs, reflecting continued weakness in the oil and gas sector. Unemployment: How Low Can it Go? The unemployment rate today is down to 5.3 percent, roughly half the level of the last recession. Conventional wisdom among most economists is that 5.0 percent is the so-called “natural rate” of unemployment, below which the Fed is wary of growing inflationary pressures. While the official unemployment rate is falling fast, many economists prefer a broader measure that counts many sidelined and part time workers. This “U6” measure of unemployment today is still hovering at 10.5 percent, a markedly less rosy picture. However, even this rate has fallen sharply, down from a whopping 17.1 percent in April 2010. One drawback of official unemployment figures is that they only count those in the labor force, and ignore the hotly debated issue of America’s shrinking labor force participation rate, now down to 62.6 percent. As we’ve discussed before, falling labor force participation is almost entirely explained by three factors: retiring Baby Boomers, longer college careers, and growing enrollment in disability benefit programs. Contrary to much debate today, none of those trends have much to do with the current business cycle. What to Watch for Friday: The consensus prediction is for unemployment to continue falling to around 5.1 percent by December. We’re expecting the July unemployment rate down slightly to 5.2 percent, and a labor force participation rate down to 62.4 percent. To speak with Andrew Chamberlain about this week’s jobs report or labor market trends, contact pr@glassdoor.com. For the latest economics and labor market updates, follow @adchamberlain.