Employment report released first Friday of each month by Bureau of Labor Statistics
Recent unemployment rate near historic low of 3.9%
Job growth trends: 250,000/month (1997-1998), 230,000/month (1999), 160,000/month (2000)
Fourth quarter 2000 saw only 77,000 new jobs/month, a 70% drop from Q4 1999
Opinion
The traditional focus on unemployment rate as a key economic indicator appears increasingly misguided. The stark decline in job creation rates, despite maintaining low unemployment, reveals a concerning disconnect between headline numbers and underlying economic health. The dramatic 70% drop in quarterly job creation suggests that market participants may be overlooking early warning signs by fixating on lagging indicators rather than leading ones.
Core Sell Point
The significant deterioration in job creation despite superficially strong unemployment figures exposes a troubling tendency for markets and media to focus on backward-looking metrics, potentially masking serious weaknesses in economic fundamentals and delaying appropriate policy responses.
1. The employment report. Typically released the first Friday of each month, the Employment Situation Summary, as the Bureau of Labor Statistics calls it, provides a quick update on the job market. Growing employment leads to increases in consumer spending, which accounts for two-thirds of the U.S. economy. Thus most economists consider the report an advance peek at future economic growth.
The financial press usually zeroes in on the unemployment rate, which has recently hovered at or near its all-time low of 3.9 percent. But that figure says more about where the economy has been than where it's headed. To get a glimpse of the future, check out the increase in "nonfarm payroll employment," or the number of new jobs created in the economy each month.
Basically, job growth is a harbinger of economic growth. Indeed, a little more than a year ago, when investors were more concerned about the economy overheating than fizzling, strong job gains actually sent the market down by raising the specter of rising inflation. Lately, though, investors have been disturbed by the slowdown in job creation (see the chart). In 1997 and 1998, for example, we added jobs at a frenetic pace of more than 250,000 a month on average. In 1999 the monthly rate slowed to fewer than 230,000, and it slipped below 160,000 last year. By the fourth quarter of last year, an average of only 77,000 new jobs were being created each month, a drop of 70 percent from 1999's fourth quarter.
That kind of decline doesn't guarantee a recession, but it certainly suggests much slower growth for the economy -- and corporate profits -- in the months ahead. If job creation numbers actually go negative for several months running, that would definitely be a red flag, since sustained job losses typically occur only during recessions.
