An Economy-Watcher’s Guide to Jobs Data: Hiring Breadth, Income

Here’s what to look when the Labor Department releases the June U.S. employment report today at 8:30 a.m. in Washington.

-- Payrolls and the jobless rate: The median forecast in a Bloomberg survey of economists projects employers added 215,000 workers last month after a 217,000 gain in May. It would mark the fifth consecutive month of payroll gains in excess of 200,000 -- the first time that’s happened since a similar stretch ended in January 2000. The jobless rate is projected to hold at an almost six-year low of 6.3 percent.

-- “If you’re growing at 200,000 jobs per month on a sustained basis, that’s fine,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “That’s a good number, that’s a healthy number -- particularly given labor force dynamics. The labor force is not growing anywhere close to that. And that’s going to be more than enough to continue lowering the jobless rate over time.”

-- “The risk at this point is that the unemployment rate falls more, and faster, than not only the consensus but more importantly than the Federal Reserve’s central tendency expects,” he said.

-- Central bank policy makers are “paying much more attention to the unemployment rate than to GDP,” he said. “So if the unemployment rate has scope to go down more, and go down faster, then that’s going to present a challenge, particularly to bond-market investors, because it means there’s a re-pricing in order down the road, meaning that the yields go higher.”

Wages, Hours

-- Wages, hours worked and labor-market slack: Average hourly earnings of all workers are projected to rise 0.2 percent for a second month. Compared with the same month in 2013, earnings are forecast to increase 1.9 percent, the smallest year-over-year gain in 2014. The average workweek is projected to hold at 34.5 hours. The Fed will be closely monitoring the wage data in the jobs report, said Sarah House, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

-- “They’ll be slicing and dicing this in a lot of ways, not just looking at the headline but also looking at the composition of the jobs being added,” she said. “They’ll be paying very close attention to wage growth. That’ll be an important part especially given that we’ve seen the consumer price index pick up over the past few months.” In May, the cost of living climbed 2.1 percent, indicating inflation-adjusted wages are stagnant.

-- “When push comes to shove in this environment, the best barometer of labor market conditions are average hourly earnings,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “The Fed will be paying attention to that.”

Underemployment Rate

-- “There’s still a lot of issues out there that need to be resolved,” House said. “Unemployment is still above 6 percent, and if you look at the employment-to-population ratio, that still looks depressed,” a sign the job market isn’t as strong as the unemployment rate suggests. The share of the working-age population that is employed was 58.9 percent in May. In October last year, it was 58.2 percent, matching the lowest level since 1983.

-- Underemployment -- which includes part-time workers who’d prefer a full-time job and people who want to work but have given up looking -- is another measure that Fed Chair Janet Yellen watches and remains “very elevated,” McCarthy said.

-- In May, there was a hint of improvement. The underemployment rate dropped to 12.2 percent, the lowest since October 2008.

Hiring Breadth

-- Diffusion index: The Labor Department’s diffusion index measures the breadth of industries beefing up payrolls. The gauge eased to 62.7 in May after reaching a five-month high of 65.9 in April. “Breadth tends to be a leading indicator of the actual amount of hiring,” according to Brian Jones, senior U.S. economist at Societe Generale in New York. Figures greater than 50 signal more industries are hiring than cutting staff.

-- “If I had a choice between one firm hiring 100 workers or 100 firms hiring one worker I’d choose the latter,” Jones said. He said he’ll be less concerned about the influence of the long-term unemployed, or people out of work for 27 weeks or longer. “Let’s be honest, the conventional unemployment rate is still the best predictor of wage growth, it’s still the best predictor of job growth,” he said.

-- Economists at Morgan Stanley in New York are among those looking for broad-based gains, including increased hiring at constructions companies, factories, temporary-help agencies and retailers.

-- “What I’ll be looking at most in the report is the breadth of gains by industry -- where those new jobs are coming from,” said House at Wells Fargo. “What that shows is how solid the labor-market recovery is. If you’re seeing gains, for example, primarily from the retail sector, but not as much in professional and business services, or some sector being left behind, that raises concern. If it’s broad gains, it’s more likely that they’re self-reinforcing.”

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