Friday's jobs report: What you should know

Tomorrow, the Bureau of Labor Statistics (BLS) and US Department of Labor (DOL) will release the latest update on the state of the labor market, officially known as The Employment Situation, but better known as "the jobs report."

February's jobs report was a blockbuster and significantly exceeded expectations, estimating that over 500,000 jobs were added in the month of January. The consensus for this month's report estimates that the US economy will have added 220,000 jobs in February 2023 and that the unemployment rate will not have changed since January, remaining at 3.4%.¹

What is it?

The Employment Situation report is released every month, and comprises 2 surveys:

• The "establishment" survey, which gauges how many people are employed, their average hourly earnings, and the average number of hours they worked across 650,000 worksites. "Nonfarm payroll" includes jobs in both business and government, while "private payroll" excludes government jobs.
• The "household" survey, which interviews people across 60,000 households to get an estimate of the unemployment rate.

These surveys help give investors a sense of how many Americans have jobs, how much they are earning, and how many hours they are working. The report is backward-looking, so this month's report contains information for the prior month.

Why does it matter?

The data in this report can have an effect on the markets, as the health of the labor market can provide a window into overall economic activity across many sectors of the US economy. How markets react to the report's data depends on many factors.

• Generally speaking, low unemployment may indicate strength in the economy, and point to the potential for broad economic growth and increased earnings for corporations. However, a tight labor market may also lead to rising wages as businesses compete for workers, which can add to inflationary pressures and more modest profit growth. Interest rates may also rise in such an environment.
• Rising unemployment may point to a weak economic situation and could lead investors to retreat to more conservative investments, such as bonds. However, because high rates of unemployment can also lead to lower interest rates, which historically tend to be good for stocks, there may still be opportunity there, as well.
• Rising or falling wages can indicate whether the economy may see increases or decreases in production, consumption, and inflation. When workers earn more, they may spend more, and the increased demand can cause inflation if the supply of goods or services cannot keep up.

What does it mean?

"While we have seen some job losses in certain sectors of the economy, when you look at the national numbers, the job market appears to still be very strong," says Naveen Malwal, institutional portfolio manager for Strategic Advisers, LLC, the investment manager for many of our clients who have a managed account. He sees this as further confirmation that the US economy remains in the late part of the business cycle. "Historically, in a late-cycle environment, we've seen tight job markets, higher inflation, and rising interest rates, as the Federal Reserve tries to lower inflation."

Though many are cautiously eyeing the jobs report for an indication of an imminent recession, Malwal doesn't see it just yet. "What would make me think we were getting closer to a recession would be a sustained pickup in weakness in the job market—layoffs and job cuts. I haven't seen that taking place so far."

In fact, there may be some good news for those concerned about inflation and the effect that rising rates could have on the broader economy. "The job market has gone from extremely hot to slightly less hot," says Malwal, noting that while there are still plenty of job openings available, they aren't quite as abundant as they were in past months.² Should this trend continue, we may see less spending among consumers, and as a result, less inflation, which could lead the Federal Reserve to ease up on their plans for further rate hikes.

Further reading:

• 3 things you should know about recessions
• Seeking security in tough markets
• Why listening to your gut might steer you wrong

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