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JOBS REPORT — What you need to know in markets on Friday

Myles Udland
Markets Reporter

The big day is here — On Friday morning, the Bureau of Labor Statistics will release the jobs report for July.

Wall Street economists expect the report to show there were 180,000 jobs added to the economy in July, a slight deceleration from the 222,000 added during June.

Economists expect the unemployment rate will fall back to its post-crisis low of 4.3%, which was hit earlier this year, while wage growth is expected to rise 2.4% over the prior year, also down from June.

A group of applicants walks past a giant American flag as they begin a site tour during a job fair, Wednesday, Aug. 2, 2017, at an Amazon fulfillment center, in Kent, Wash. (AP Photo/Elaine Thompson)

Outside of the jobs numbers, the schedule on Friday should be fairly light, as the earnings flow will slow down with Berkshire Hathaway’s (BRK-A, BRK-B) quarterly report due out after the bell serving as the highlight.

Friday also marks the final working day for lawmakers in Washington, D.C., ahead of the August recess. A few late-day headlines on Thursday, however, are likely to be prominent in the news cycle.

The Wall Street Journal reported Thursday that special counsel Robert Mueller, “has impaneled a grand jury in Washington to investigate Russia’s interference in the 2016 elections.” Reuters also reported that grand jury subpoenas, “have been issued in connection with a June 2016 meeting that included President Donald Trump’s son, his son-in-law and a Russian lawyer.”

Stocks modestly sold-off after the headlines crossed on Thursday, though ultimately this news had little effect on markets on Thursday. But for investors hoping that headlines related to Russian interference in the election would eventually fall into the background, this news is a reminder that this will not likely be the case.

Jobs preview

In addition to the 180,000 headline job gains expected in July with the unemployment rate falling to 4.3%, wages are expected to rise 0.3% in July over the prior month and 2.4% over the prior year.

Also closely watched will be the underemployment rate — which includes those unemployed as well as folks employed part-time but that would like full-time work — which stood at 8.6% in June. The labor force participation rate has also been closely eyed by economists and politicians and stood at 62.8% in June.

In a note to clients ahead of the report, Goldman Sachs economist Spencer Hill said the firm expects a better-than-consensus 190,000 jobs were added in July reflecting, “generally favorable labor market fundamentals and a potential boost from evolving seasonality.”

The seasonal adjustment Hill refers to is an increasing recognition of the roughly one million education employees who leave the workforce at the end of July each year as the school year ends.

Payroll gains in July have been solid in recent years despite declines in the number of people employed because the school year ends. This adjustment from the BLS should keep any weird quirks out of Friday’s report. (Source: Goldman Sachs)

Sam Coffin, an economist at UBS, wrote in a note Thursday that his team will be focused on what economists call “tightness” in the labor market, or how many more available workers there are for hire, and who has the balance of power, employers or employees.

“Many measures — participation, labor market flows, and slow wage growth — hint that the jobs market is not as tight as the unemployment rate suggests,” Coffin writes. “In turn, the pace of payrolls, faster or slower, is more likely an indication of changes in labor demand than supply.”

With millions of jobs still being added to the economy per year and the unemployment rate now within shouting distance of 4%, many economists expected we’d see wage pressures beginning to perk up. Increasing wages would be indications of there not being enough labor supply.

But Coffin, and others, still see the labor market as not quite looking like one that truly favors employees over employers, and the longer we go without major wage pressures perking up, the more this thesis will be seen as most accurately portraying the state of the labor market right now.

Jed Kolko, chief economist at Indeed, wrote in a note earlier this week that, “The big puzzle remains why wage growth remains sluggish despite unemployment being near its lowest point in many years.”

Kolko adds, however, that this “puzzle” may not quite be what it appears on the surface. Wage pressures actually are popping up in the economy, accruing to those with less education and those that make lower wages, Kolko notes.

Wages for workers in the lowest tercile of earners rose 3.4% in May, better than the 2.2% wage gains seen by the highest third of earners. Additionally, workers with a high school degree only or those with an associate’s degree or some college each saw wages rise more than 4% over the prior year in May. This more than doubled wage gains seen for those with graduate degrees.

Wage gains have been accruing to the workers with the fewest educational credentials in recent months. (Source: Indeed)

And so the composition of wage gains has kept a lid on overall gains, but does belie some concerns voiced by economists that there are simply no wage pressures extant in the economy.

And at this point in the cycle, with the labor market having seen positive job growth for more than six straight years, it is these deeper trends that are the real highlights inside the monthly report.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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