The recent “Brexit” vote and a weak jobs report last month sent shock waves through financial markets in June. What should we be watching for in this Friday’s
monthly jobs report? Here are our top-line predictions:
- Moderate 152,000 new jobs added to nonfarm payrolls in June.
- Unemployment rate essentially unchanged at 4.8 percent.
- Average hourly wages up 2.5 percent from one year ago.
- Labor force participation rate down slightly to 62.5 percent.
Last month’s weak jobs report was the weakest since 2010, with just 38,000 new jobs created in May. Needless to say, the report caught many analysts (myself included) by surprise. Many commentators since then have been waiting for the other shoe to drop on signs of a broader economic slowdown, and their forecasts reflect it.
According to the Wall Street Journal’s
survey of professional forecasters, the consensus view is for roughly 155,000 new jobs in June, down significantly from recent months. Accompanying this pessimistic outlook, the same survey reports that the probability that we’re now headed into a recession is up to 21 percent in June—a one in five chance—and is up sharply from 10 percent last September.
However, despite this pessimism the smoking gun that the U.S. economy is barreling toward a slowdown simply hasn’t yet materialized. According to nearly every source of data we have available today, the U.S. labor market still appears remarkably healthy with no clear signs of an impending slowdown on the horizon.
Show Me the Data
Consider the bigger picture on the health of today’s labor market. As of May, the unemployment rate is hovering at a rock-bottom 4.7 percent. That’s the lowest since 2007, and many metro areas in the U.S. now boast unemployment rates as low as 3 percent.
In terms of new weekly
claims for unemployment insurance—the closest thing we have to a real-time job market indicator from the federal government—they are hovering at a historically low and healthy level of 268,000.
What about wages? Although they are growing as a slow pace of 2.5 percent per year, with today’s near-zero inflation that means workers are seeing real gains in living standards.
But the most convincing evidence of all about the strength of today’s labor market is the sheer number of unfilled jobs today. As of April there were 5.8 million open jobs in the U.S., an all-time record high. During an economic downturn, the first place employers look to cut are unfilled jobs. As of today, there is no evidence that U.S. employers on average are scaling back hiring plans.
As of the end of June, the current economic expansion celebrates its seventh birthday—84 months since the June 2009 trough of the Great Recession. It’s normal for job growth to be slowing in this late stage of the business cycle.
But as of today, there are essentially no signals in the actual data of an impending U.S. slowdown. Instead, all signs point to continued slow and steady growth throughout the summer months.
The Elephant in the Room: Brexit
The biggest political and economic event this year so far has been the British vote to leave the European Union. Financial markets reacted dramatically, sending the value of the British pound down sharply as traders reacted to surprise news of the election outcome.
As of today, the reality is that economists don’t know what the impact of Brexit will be.
According to the Wall Street Journal’s survey of economists, about 49 percent said the move would affect financial markets but not the underlying U.S. economy. About 37 percent say it will have a “slight negative effect” on the economy. Just over 8 percent said it would have no effect, and just 5 percent said it would have a substantial negative effect on U.S. growth.
Because Brexit actually ushers in two or more years of negotiations with the EU about trade, immigration and many other policies following the split of the two entities, it will take years to sort out the effects. One reason to be optimistic: Norway and Switzerland have long enjoyed healthy economic growth while remaining outside of the EU, suggesting a way forward for healthy post-Brexit-EU trade relations.
From a long-term view, economic history is replete with
examples of monetary and political unions that ebbed and flowed. Regardless of the outcomes of the Brexit vote, the UK economy has thrived on sound economic and political foundations for hundreds of years, and will likely continue to do so. An exit from the EU is certain to impose short-term costs on the British economy—possibly even a dip in employment in the UK. But it’s not likely to dampen British growth prospects much over the long term.
To speak with Dr. Andrew Chamberlain about this month’s jobs report or labor market trends, contact pr [at] glassdoor [dot] com. For the latest economics and labor market updates, subscribe to email alerts here and follow @adchamberlain. 
