What to look for in Friday’s jobs report

Originally Published: 04 JUL 24 08:00 ET

By Alicia Wallace, CNN

(CNN) — The US labor market has held its own despite swirling forces — high inflation, an aggressive interest-rate-hiking campaign, pandemic aftershocks and geopolitical uncertainty — that seemed all but certain to trigger a recession.

Monthly job gains have frequently come in stronger than expected, and unemployment has held at or below 4% for 30 consecutive months.

That said, the job market of today is far different than it was 30 months ago.

“The labor market has normalized,” Luke Tilley, Wilmington Trust’s chief economist, told CNN in an interview. But, he cautioned, “the concern would be if it worsened from here.”

Economists don’t believe job gains will fall off a cliff when the Bureau of Labor Statistics releases employment data for June on Friday morning.

In fact, the monthly payroll gains should remain strong and steady, but gradually cooling: Economists expect the US added 190,000 jobs last month, a pullback from the stronger-than-expected 272,000 gain in May, and for unemployment to hold steady at 4%, according to FactSet consensus estimates.

Still, there’s a growing chorus of data that shows the economy is slowing, consumer spending is letting up and workers are feeling less secure. As such, Friday’s report could provide a crucial signal as to whether the jobs market is at a stable or even pre-pandemic state — or is perhaps weaker than advertised.

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

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

“If we see the cooldown go from gradual to steep, I think that’s a warning,” she said.

Whether the two surveys will still tell different tales

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

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

“The establishment and household surveys are continuing to show diametrically opposed pictures of the labor market,” Dean Baker, economist and co-founder of the Center for Economic and Policy Research, wrote in a note issued earlier this week.

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

Notably, there are fewer job openings, hiring has pulled back, people aren’t as willing to test the waters and are staying put in their current jobs; and, perhaps most importantly, layoff activity has been climbing steadily higher in recent weeks.

Are permanent job losers on the rise?

Last week, there were an estimated 238,000 first-time claims filed for unemployment benefits, an increase of 4,000 from the week before, according to Department of Labor data released Wednesday. The latest uptick brought the four-week average of initial claims to its highest level since August 2023.

Also, Americans are staying unemployed 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 upswing in claims has Tilley closely watching an underlying datapoint of the monthly jobs report: Unemployed persons by reason for unemployment.

“On a three-month average basis, it’s up about 200,000 people from last year,” Tilley said. “And that metric of permanent job losers, year-over-year, is almost never positive in an expansion. It was never positive between 2010 and 2019; it was not positive in between the tech crash recession of 2001 and then 2008.”

He added: “So when you sort of peel back the onion from what looks like very strong job growth in a raw number count and look at it a little closer … that paints a labor market that has normalized and is at risk of slipping.”

Still, other measures of layoff activity haven’t shown a worrisome spike.

US-based employers announced fewer job cuts last month than they did in May; however, those layoff reports are trending well above last year’s, according to data released Wednesday by Challenger, Gray & Christmas.

The outplacement and workplace research firm counted 48,786 cuts announced in June. That’s down nearly 24% from the 63,618 cuts announced in May, but 19.8% higher than the 40,709 cuts announced in June last year.

How immigrants contribute to the labor market

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

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

Immigrants accounted for 43% of the labor force gain in 2024, Rachel Sederberg, senior economist at labor market research firm Lightcast, told CNN Business. In May, that share skyrocketed to 280%, as the immigrant gains more than made up for the native-born workers who left the labor force, she said.

The job gains made by immigrants have become another flashpoint in an already heavily contentious presidential election. During the CNN debate last week between President Joe Biden and former President Donald Trump, the latter falsely claimed that all job gains since Biden took office were made by illegal immigrants and “bounce-back jobs.”

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

Other indicators to watch

Average hourly earnings: Workers’ pay gains have been slowing, and that’s expected to continue in June. Economists expect that the month-on-month gains should come in around 0.3%, from 0.4% in May, and for annual gains to cool to 3.9% from 4.1%.

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

Fed Chair Jerome Powell on Tuesday said the labor market has seen a “pretty substantial move” toward getting back into a better balance. While speaking at the ECB’s annual conference in Portugal, Powell noted the unemployment rate was moving up toward “a more sustainable level,” as were wage increases.

“Wage increases are still a bit above where they would wind up in equilibrium; but nonetheless, you can see the labor market is cooling off appropriately,” he said. “We’re watching it very carefully, but it doesn’t look like it’s heating up or presenting a big problem for inflation.”

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

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

Part-time workers: New data from employment site Indeed indicated that employers are looking to hire more part-time workers.

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

“They’d like full-time hours but can’t get them, which is potentially an indicator of a softening labor market,” according to Lightcast’s Sederberg. “That said, the number of people who are involuntarily part time are still very, very low.”

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