Those brave enough to predict think that tomorrow's jobs report will show a net gain of 188,000 payroll jobs (compared with 292,000 in December) and an unchanged 5.0 percent unemployment rate. Unless tomorrow's numbers are substantially different from that, they shouldn't change the prevailing narrative that labor market conditions continue to improve but have not yet returned to "normal."
Federal Reserve policymakers think that unemployment is already very close to its long-run normal level, but as Federal Reserve Vice Chairman Stanley Fischer said recently, a drop in unemployment below that level "would be appropriate in current circumstances." Fischer cites other measures of labor market conditions that I discuss often on this blog -- e.g., the share of people working part-time who want to work full-time and the number who are out of the labor force but want to work -- which indicate that there's more slack in the labor market than the unemployment rate alone would suggest.
A tighter labor market could help move inflation back to the Fed's target of 2 percent more rapidly, presumably by putting upward pressure on wages, Fischer adds. The flip side, however, is that while falling oil prices and a rise in the dollar's value have suppressed inflation, they've also hurt the U.S. oil and gas industry and manufacturing. The economy grew a paltry 0.7 percent in the fourth quarter of 2015, and global economic weakness and financial turmoil are worrisome.
The economic outlook is considerably cloudier now than it was in December, when the Fed first raised interest rates and created expectations that it would raise them again in March. Even if expectations for tomorrow's jobs report pan out and we see solid payroll growth and further progress toward reducing labor market slack, the Fed should hold off on raising rates until it's clear that the economic recovery retains traction.
(Hat tip to the estimable Fed watcher Tim Duy, via Mark Thoma's Economist's View blog, for this exegesis of Vice Chairman Fischer's and other Fed officials' recent remarks.)
This post originally appeared on Off the Charts, the Center on Budget and Policy Priorities' blog.