The first Friday, explained: Why the jobs report is more important than ever this year

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The first Friday of the month is a big deal in the financial world. It’s the day when the Employment Situation Summary — a.k.a. the US jobs report — is published.

Despite its prosaic title, the report is perhaps the most significant economic indicator compiled by the government or private sector. It not only shapes Americans’ views of their financial prospects and the president’s economic leadership, but plays a key role in Federal Reserve interest rate decisions.

The jobs data are especially important this year. It’s simply not clear whether the slowing labor market is signaling an economic downturn.

The December report comes out this Friday. The consensus among forecasters is that the unemployment rate dipped 0.1 percentage point to 4.5 percent, while employers added 70,000 jobs, a modest improvement from the previous month. It will be the first “clean” report after distortions caused by the government shutdown, which started in October.

Investors and economists will analyze every detail to determine whether the “low-hire, low-fire” environment that’s prevailed since May is shifting for better or worse. Markets will likely swing on the news.

But have you ever wondered where the jobs numbers come from, how to make sense of them, and why seemingly good news sends stocks lower? If so, here’s a primer.

The unemployment rate and the number of jobs added or shed by employers are the two headlines generated by the report, which is produced by the Bureau of Labor Statistics from two large surveys it conducts each month.

BLS collects employment and earnings data from roughly 121,000 businesses and government agencies, covering about one-third of all nonfarm workers. It would be impossible to reach every employer in the country (there were nearly 6 million in 2023, so the results are estimates based on the large statistical sample and adjusted for seasonal factors such as holiday retail hiring and winter construction slowdowns.

Note: The establishment survey tracks jobs, not people. Two part-time jobs filled at different firms by the same worker are both counted.

Separately, BLS contacts about 60,000 households representing some 110,000 individuals and asks about their employment status. Do they have a job? Are they actively looking for one? How long have they been out of work?

A person is counted once even if they hold multiple jobs, and unlike the establishment survey, the self-employed and farm workers are included in the totals.

The unemployment rate is the estimated number of people without a job — but searching for one — as a percentage of the labor force, which comprises job holders and job hunters.

Sometimes the surveys flash conflicting messages.

In a given month, employers might report adding 100,000 jobs while the unemployment rate rises. How can that be?

The jobless rate can increase when more people enter the labor force and start looking for employment. They join the ranks of the unemployed until they land a job.

Conversely, the unemployment rate can fall even when employers shed jobs if enough people leave the labor force.

Secondary metrics such as wage growth, labor force participation — the percentage of the population 16 years and older who are in the workforce — and the U-6 jobless rate reveal crucial nuances about labor market health.

Changes in average hourly earnings show whether workers have bargaining power and if wage growth risks fueling inflation. The labor force participation rate indicates whether workers are entering or exiting the job market.

The U-6 rate, which includes part-time workers who would rather be working full-time and those marginally attached to the workforce, exposes hidden slack that the narrower unemployment rate misses.

Context is the key.

For example, in 2021 and 2022, job gains averaged about 490,000 a month as the economy staged a powerful recovery from pandemic disruptions in 2020. As the expansion matured over the next two years, monthly employment growth slowed to around 190,000, but the jobless rate remained relatively tame compared with long-term levels.

Last year, hiring averaged just 55,000 a month through November, not enough to prevent unemployment from climbing to 4.6 percent. That rate was markedly above the post-COVID low of 3.4 percent, but still comfortably below the 5.8 percent average of the past 20 years.

This question brings us back to the Fed.

The central bank’s job is to promote maximum employment and low, steady inflation. Low interest rates encourage hiring. High rates keep price gains in check.

But a very tight job market might signal an overheating economy, raising concerns that inflation could spike.

That puts pressure on the Fed to boost rates — which stock investors dislike because it makes bonds more attractive and squeezes corporate profits.

Fed policymakers are split on whether inflation or further job market deterioration is the bigger threat to the economy.

Investors are betting employment falls enough to prompt the Fed to cut rates twice this year. A strong December jobs report could upend those expectations.

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“We are in a spot where we’re going to have to address some of those headwinds that are coming our way from D.C.”

— Rhode Island Governor Dan McKee, on why he is open to a surtax on high earners to help close an estimated $101 million budget deficit in the fiscal year starting July 1.

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Stress test: New England’s liberal arts colleges are in crisis. Can their model survive?

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Pet project: A new campaign seeks to end pet discrimination in Massachusetts rental housing.

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Scrapped: CIM Group is putting the Motor Mart Garage on Boston’s Stuart Street up for sale, abandoning plans to build a luxury condo tower on the property.

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Filling a hole: John Barros, former mayor Marty Walsh’s economic development chief, has emerged as the top choice for interim executive director of the Massachusetts Convention Center Authority, following the ouster last month of Marcel Vernon Sr.

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Stuck in neutral: The Massachusetts unemployment rate held at 4.7 percent in November while employers added just 1,800 jobs compared to the same month the year prior.

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$100 million

— The amount, in gold, that the Truman administration offered Denmark in 1946 to buy Greenland, or about $1.8 billion in today’s dollars.

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Grrr.

Every 18 months or so, my credit card information gets stolen and sold on the internet. Then comes the tedious process of submitting a fraud claim to the bank, waiting for a new piece of plastic to arrive in the mail, and updating Netflix, Amazon, and all the other services I pay for automatically online.

It happened again recently. The bank flagged two suspicious transactions: $49.51 to a pizza place and $1,560.70 to an auto repair shop — both in Chicago, where I haven’t been in… I don’t know how long.

The charges were wiped out, but it took me more than two hours in front of my computer to enter the new card number, expiration date, and CVV code into three dozen autopay accounts. Without the autofill feature in Chrome, it would have taken twice as long.

In this age of AI, why isn’t there a way for me — or better yet, the bank — to do all the work?

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🏅 On this date in 2015, US Olympic Committee board members chose Boston over Los Angeles, San Francisco, and Washington to bid for the 2024 Summer Olympics. The city eventually dropped its quest — remember that ridiculous debate between Steve Pagliuca and Dan Doctoroff (pro) and Chris Dempsey and Andrew Zimbalist (con)? The Games were held in Paris.

👋 Thanks for reading. Trendlines will be back on Monday.

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Larry Edelman can be reached at larry.edelman@globe.com.