After a long winter, we will finally get a glimpse into where the employment market is headed. Here's how to come to your own conclusion.
Unless you have living in Miami or Honolulu, this was probably one of the longest winters you can remember. Winter seems to have been unwilling to let go and continued to pile snow in the Mid Atlantic and North East into March.
While March had a lot of the snow, it wasn’t as severe as the middle of the winter and we should get a better read on what is actually happening in the employment market.
On Wed, the ADP Employment report will give us the first read on March's numbers. While a good read, don't jump to conclusions too quickly, the ADP report estimated the number of new jobs at just 139k for February vs a consensus estimate of 160k and an actual of 175k as released by the Dept of Labor.
The Non Farm new jobs data from the Labor Department will be released this Friday and the consensus estimate from MarketWatch is 200,000 new jobs. This will in turn drop the unemployment to 6.6%. Sounds good, right? But, is that actually enough?
To answer that question, we need to determine a few things:
- What is the desired unemployment rate?
- What is the time horizon (how long) until we want to achieve the desired unemployment rate?
To maximize the opportunities in the economy for all, our collective goal should be to reach a level known as Full Employment. That is the point when all able and willing people are employed. While that is a simple and logical answer, the actual data point to go along with it is not as easy to peg. The general measure of employment is actually its inverse, being the unemployment rate. While Economists differ on what the actual number should be, with ranges that go from as low as 2% to as high as 10%, a generally accepted target is 5.5%, which is the number I will use for this discussion.
As for the timeline, this is even harder to commit to than the actual rate. The timeline has to do with how far you have to go, the speed that fiscal and monetary policy can have, and the desired long term sustainability of the market. Changes that take too long dampen their impact. Changes that are too fast introduce different elements of risk and unintended consequences. For the sake of this discussion, let's reference an 18 month timeline for when we collectively would like to reach Full employment.
Now that we know how much, and when, how do we know whether or not we are actually on course?
The Atlanta Fed has put together a great tool called their Jobs Calculator to measure this. If you plug in 5.5% as your target rate, and 18 months as your time horizon, the calculator will give you a targeted number of new jobs to be added of 204k. That is the number of jobs that need to be added every month in order to achieve Full Employment.
You can play with this by changing either of the inputs and come up with your own targets and measures of success. Then when the data comes out this week, you can gauge whether or not we are on track based on the actual metrics, and make your own decision as to whether or not things are going well in the world of employment.
With March's employment numbers right around the corner, and the snow, sleet, and rain storms pretty much behind us, we'll wait with bated breath to see what March can teach us about how employment is going to shape up in the coming months!
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