Analysts and market participants will look to the January jobs report, which will be released on Friday, to shed light on familiar questions. The answers may be even more consequential given other developments in the U.S. and global economies.
The first question is whether the U.S. economy can maintain a robust pace of monthly job creation this far into the economic cycle. Already, the three- and six-month moving averages for job creation have significantly exceeded the pace that would be expected after impressive prior gains and a steep decline in the unemployment rate.
By contrast, wage growth has continued to run below expectations, contributing to what economists see as an unusually flat Phillips curve. In turn, this has limited the household income gains that would normally accrue with the labor market achievements. This may also help to explain why the labor participation rate has not materially edged up from a level that remains uncomfortably near multi-decade lows.
There will also be interest in the inclusiveness of the labor market gains — particularly whether they continue to accrue significantly to African-American and Hispanic households, as well as those with lower educational attainment.
These questions take on added importance in the context of recent developments in the global and U.S. economies.
The world is experiencing a synchronized growth pickup that, along with greater hopes for further policy advances, is fueling optimism that advanced countries will finally overcome too many years of the “new normal” of low and insufficiently inclusive growth. I have written about this several times in the last year. Remember, the sooner this yields to a higher growth paradigm, the better the prospects for the economy’s future expansion potential, financial stability, restoring trust in institutions, containing the politics of anger and countering the risk of fragmentation of the international economic order.
A solid gain in household income driven by both jobs and earnings would better underpin consumption growth, enhance the prospects for a pickup in business investment, and lower currency and trade tensions. It would also contribute to the continued “beautiful normalization” of the Federal Reserve’s unconventional monetary policy.
Finally, the combination of robust job creation, healthy wage growth and higher labor participation would also help contain worries that the deficit effects of the recently enacted U.S. tax legislation could undermine longer-term debt sustainability.
The jobs report has traditionally been one of the major data releases, and for good reason. It helps understand a crucial segment of the U.S. economy. Its importance is amplified these days as the U.S. and its peers in the advanced world are in a better position to move on from too many years of low and insufficiently inclusive growth.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO.