What to look for in Friday's jobs report

JOBsNews —

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The U.S. labor market has held up despite shifting forces — high inflation, an aggressive interest rate hike campaign, pandemic aftershocks and geopolitical uncertainty — that seemed all but certain to trigger a recession.

Monthly job gains have frequently been larger than expected, and unemployment has remained at 4% or below for 30 consecutive months.

That said, today’s job market is very different than it was 30 months ago.

“The labor market has normalized,” Luke Tilley, chief economist at Wilmington Trust, told JOBsNews in an interview. But he cautioned that “the concern would be if it got worse from here.”

Economists don’t expect job gains to plummet when the Bureau of Labor Statistics releases June employment data on Friday morning.

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In fact, monthly payroll gains should remain strong and steady, but gradually cooling: Economists expect the U.S. to have added 190,000 jobs last month, a pullback from the previous month. Increase of 272,000 in May, stronger than expectedand unemployment held steady at 4%, according to FactSet consensus estimates.

Still, there is a growing chorus of data showing the economy is slowing, consumer spending is declining and workers are feeling less secure. So Friday’s report could provide a crucial signal about whether the labor market is in a stable or even pre-pandemic state — or whether it is perhaps weaker than advertised.

“I think as long as job gains continue to show a gradual cooling, this economy is in good shape,” Nela Richardson, chief economist at ADP, said during a call with reporters Wednesday following the payroll processor’s latest report showing job and wage gains slowing in the private sector.

ADP estimated that private employers added 150,000 jobs last month, down from 157,000 in May.

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“If we see the cooling go from gradual to pronounced, I think that’s a warning,” he said.

In May, the two surveys that feed into the monthly employment report appeared to tell different stories: The business survey showed employers were adding jobs at a still-solid pace, and the household survey showed a drop of 408,000 jobs.

While economists consider the establishment survey to be the “gold standard,” the household survey, which provides greater detail on demographics and feeds into the unemployment rate, is considered more volatile because of its smaller sample size and declining response rates.

“Establishment and household surveys continue to paint diametrically opposed pictures of the labor market,” wrote Dean Baker, an economist and co-founder of the Center for Economic and Policy Research, in a note published earlier this week.

“The persistence of this wide divergence is disconcerting,” he added. “Most of the other data seem to fit better with the establishment survey, although we are seeing evidence of a weakening labor market.”

It should be noted that there are There are fewer job openings, hiring has slowed, people are less willing to test the waters and are staying in their current jobs.; and, perhaps most importantly, layoff activity has been steadily increasing in recent weeks.

Roughly 238,000 first-time claims for unemployment benefits were filed last week, an increase of 4,000 from the previous week, according to Labor Department data released Wednesday. The latest spike pushed the four-week average of initial claims to its highest level since August 2023.

Americans are also remaining jobless for longer: Continuing claims, which are filed by people who have received benefits for at least a week or more, rose to their highest level since November 2021.

The continued rise in claims has Tilley keeping a close eye on one underlying data point in the monthly jobs report: Unemployed people by cause of unemployment.

“On average, over three months, the number was up by about 200,000 people compared to last year,” Tilley said. “And that metric of permanent job losses, year over year, is almost never positive in an expansion. It was never positive between 2010 and 2019; it was not positive between the tech crash recession of 2001 and then 2008.”

He added: “So when you peel back the shell of what looks like very strong job growth on a raw count and look at it a little bit more closely … that paints a picture of a labor market that has normalized and is at risk of slipping.”

Still, other measures of layoff activity have not shown a worrying increase.

U.S.-based employers announced fewer job cuts last month than in May, but those layoff reports are still trending higher than last year, according to data released Wednesday by Challenger, Gray & Christmas.

The job placement and employment research firm counted 48,786 announced layoffs in June, down nearly 24% from the 63,618 announced layoffs in May but up 19.8% from the 40,709 announced layoffs in June of last year.

Since August 2022, monthly wage gains have averaged $250,000 per month, which is much faster than the 2019 average of $164,000, said Julia Pollak, chief economist at ZipRecruiter.

“In other words, we are achieving much higher job growth with roughly the same unemployment rate, at a time when the native-born population is stagnant,” Pollak told JOBsNews via email. “A key reason is immigration and its effect on labor supply.”

Immigrants accounted for 43% of the labor force gains in 2024, Rachel Sederberg, a senior economist at labor market research firm Lightcast, told JOBsNews Business. By May, that share had jumped to 280% as immigrant gains more than offset native-born workers leaving the labor force, she said.

Jobs gains made by immigrants have become another flashpoint in an already hotly contested presidential election. During last week’s JOBsNews debate between President Joe Biden and former President Donald Trump, the The latter falsely claimed that all job gains since Biden took office were Made by illegal immigrants and “jobs that are recovered.”

“Most research does not conclude that immigration harms the employment conditions of native-born Americans because immigrants are both consumers and producers of goods and services, so they may increase labor competition in some areas, but they also increase demand for goods and services, which creates jobs,” Pollak said.

Average hourly earnings: Workers’ wage increases have slowed and are expected to continue in June. Economists expect month-on-month increases to be around 0.3%, down from 0.4% in May, and annual increases to cool to 3.9% from 4.1%.

This is an indicator that Federal Reserve officials have been watching closely as a potential indicator of inflationary pressure.

Federal Reserve Chairman Jerome Powell said Tuesday that the labor market has seen “fairly substantial movement” toward returning to a better equilibrium. Speaking at the ECB’s annual conference in Portugal, Powell noted that the unemployment rate was rising toward “a more sustainable level,” as were wage increases.

“Wage increases are still a little bit above where they should be in equilibrium, but nonetheless you can see that the labor market is cooling down appropriately,” he said. “We are watching it very closely, but it doesn’t seem to be heating up or presenting a big problem for inflation.”

Labor force participation rates: While working-age women have experienced record levels of employment in recent months, other measures of labor force participation remain below pre-pandemic levels.

The overall labor force participation rate fell in May to 62.5% from 62.7%, reversing progress made earlier this year.

Part-time workers: New data from job site Indeed indicates that employers are Looking to hire more part-time workers.

The number of involuntary part-time workers has increased in recent months.

“They would like to have full-time hours but can’t get them, which is a possible indicator of a slowing labor market,” according to Lightcast’s Sederberg. “That said, the number of people working part-time involuntarily remains very, very low.”