What to look for in Friday's monthly jobs report

Job seekers wait in line during the TechFair LA job fair in Los Angeles, California.
Patrick T. Fallon | Bloomberg | Getty Images
Job seekers wait in line during the TechFair LA job fair in Los Angeles, California.

Friday marks the first monthly jobs report of the Trump presidency, and there are a few reasons to think it'll be good.

Total nonfarm employment is expected to increase by 175,000, according to Reuters. Company executives could be hiring in anticipation of a business-friendly environment under the new administration. The economy had also been heating up under former President Obama and added over 14 million jobs since bottoming out in January 2010.

The country has added a monthly average of 204,000 nonfarm payroll jobs over the past two years, according to data from the Bureau of Labor Statistics.

Positive private payrolls

Market observers' hopes for a solid month of job growth were buoyed Wednesday when payroll processor ADP reported 246,000 new workers added to private payrolls in January, beating economists' expectations significantly. A particularly positive note in the report was that goods-producing companies showed life, hiring 46,000 workers, the biggest increase in two years.

ADP's report was a positive sign, but it's no guarantee that the BLS will have similar numbers. The two reports employ different methodology and, as CNBC reported in October, the ADP report often differs from the BLS' measure of private nonfarm jobs. Half the time, the difference is greater than 40,000 jobs.

Measuring wages

Economists polled by Reuters expect the official unemployment rate remained at 4.7 percent in January. But a slight increase in the unemployment rate isn't always a bad thing. Because the unemployment rate is based on the number of workers in the labor force, an increase in that total can cause the rate rise just because there are more people looking for work.

When people haven't been looking for work — often because they feel discouraged by long periods of unemployment — they're not included in the BLS' estimates. When they come off the sidelines and get back into the labor pool, that can cause the overall rate to go up slightly.

Until recently, wages have been an area of concern for economists. As the labor market tightens, you'd expect to see wages go up as employers compete for the dwindling supply of qualified job candidates. Hourly wages increased by 2.5 percent in December, which is about average for the past decade.

Economists expect to see rising wages continue largely thanks to minimum wages increases in 21 states, many of which took effect at the beginning of January.

Inauguration doesn't help

But what about the so-called Trump effect? After all, the president campaigned on a platform of bringing jobs home from overseas and creating manufacturing jobs where they've disappeared. While all incoming presidents say they want to increase jobs, January doesn't always bear that out.

It turns out that the month of January generally has proved one of the most difficult months to estimate job growth. Since the mid-1950s, the nation has added an average of 119,000 jobs in the month of January, less than the 128,000 average for all months. Januaries with new administrations entering office have actually seen an average net loss of around 4,000 jobs on average.

But that negative average masks a volatile month: January seems to be the hardest month for the BLS to get right in terms of jobs numbers. When the Labor Department puts out its fresh report on jobs added last month, it also revises previous estimates. The revision in nonfarm payrolls in January has the biggest standard deviation — around 146,000 — of any month of the year, at least since 1955. That means the BLS's initial estimate of jobs added in January could be revised wildly in one direction or the other.

Look at January 2001, when the BLS' initial estimate of 226,000 jobs added turned out to be off the mark. The country actually lost 26,000 jobs in the month, the beginning of a slide into recession