When the U.S. Department of Labor issues its monthly employment report, investors tend to focus on two data points: the unemployment rate and the number of jobs added to the economy. But we believe other indicators in the report can reveal a lot about the health of the labor market and where employment might be headed.
- Labor force participation. This measures the share of working-age people who are either employed or unemployed but looking for a job. The latter point is important because when an unemployed person stops looking for work they are no longer considered jobless, which will actually make the unemployment rate fall.
>Why it matters. The labor force participation rate can tell you if a drop in the unemployment rate is a true sign of economic health or evidence that the economy is shutting out a growing share of would-be workers.
- Part-time workers. The jobs report also includes the number of people working in a part-time capacity “for economic reasons.” That means they are working, but not as many hours as they would like due to a lack of full-time opportunities.
>Why it matters. In a genuine jobs recovery, this figure should decline as part-timers find full-time work.
- Wage growth. In a normal economic recovery, wages tend to rise and unemployment tends to fall as employers start to compete over a shrinking group of job seekers by boosting compensation.
>Why it matters. If wage growth is weak despite a drop in unemployment—which has been the case in the latest recovery—that could be another signal that many potential workers have yet to return to the labor market.
Taken together, these indicators provide a better sense of the overall health of the jobs market. Digging a little deeper can help investors decide whether the headline figures tell the full story.