Why the Bureau of Labor and Statistics jobs report is important
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy.
Personal spending and employment
Personal spending accounts for almost 70% of the U.S. gross domestic product (or GDP). Employment, through wages, is what enables such spending, making it a key driver of economic growth. So investors as well as economists closely watch the employment indicator statistics released by various government and private agencies—particularly the BLS Employment Situation Summary Report, as it provides some insight into the dynamics of the labor market.
The job market is the heartbeat of the economy. It’s both an indicator of economic health—since a strong economy prompts companies to hire more workers—and an engine of growth, since higher employment means more dollars available to spend on goods and services. Without job growth, overall economic growth is likely to be limited no matter what else is happening in other areas of the economy.
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It’s comprehensive and available early in the month. Many other economic indicators depend on the information presented in the report. The report reveals information about the labor market, income levels, and industrial production.
The performances of popular exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the iShares S&P 100 ETF (OEF), which track the large-cap equities of companies like Apple Inc. (AAPL) and Exxon Mobil Corp. (XOM), serve as a good indicator of the course the U.S. equity market is taking. Equity markets tend to rise when economic conditions are improving, and vice versa.
The Employment Situation Summary Report is used to help determine the tightness of the labor market. This tightness gives an indication of inflationary pressures on wages. A tight job market is basically when the number of qualified workers is less than the number of jobs available in the market, so the labor market has more jobs than workers, leading to upward (or inflationary) pressure on the wage rate.
Alternatively, in the case of slack in the labor market, the reverse is true—the labor market has more workers chasing fewer jobs available, leading to a squeeze on the wage rate.