CNN
–
The U.S. labor market has held its own despite swirling forces — high inflation, an aggressive interest-rate hike campaign, pandemic aftershocks and geopolitical uncertainty — that looked set to trigger a recession.
Monthly labor gains have often come in stronger than expected, and unemployment has been held at or below 4% for 30 straight months.
That said, today’s job market is much different than it was 30 months ago.
“The labor market has normalized,” said Luke Tilley, Wilmington Trust’s chief economist, in an interview with CNN. But, he warned, “the concern would be if it gets worse 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, monthly payroll gains should remain strong and steady, but gradually cooling: Economists expect the U.S. added 190,000 jobs last month, a pullback from the stronger-than-expected gain of 272,000 in May and that unemployment remains stable at 4%. , according to FactSet consensus estimates.
However, there is a growing chorus of data showing that the economy is slowing, consumer spending is shrinking and workers are feeling less secure. As such, Friday’s report could provide a crucial signal as to whether the labor market is in a stable or even pre-pandemic state — or 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, ADP’s chief economist, said on a call with reporters Wednesday after the latest report. of the payroll processor showing labor and salary earnings. slowed down in the private sector.
ADP estimated that private employers added 150,000 jobs last month, up from 157,000 in May.
“If we see the cooling go from gradual to steep, I think that’s a warning,” she said.
In May, the two surveys that feed into the monthly jobs report appeared to be telling different stories: The business survey showed employers added jobs at a still-strong pace, and the household survey showed a decline of 408,000 jobs.
While the business survey is considered the “gold standard” by economists, the household survey, which provides greater detail on demographics and feeds the unemployment rate, is seen as more volatile due to its smaller sample size and declining of response rates.
“The station and household surveys continue to show diametrically opposed views of the labor market,” wrote Dean Baker, economist and co-founder of the Center for Economic and Policy Research, in a note released earlier this week.
“The persistence of this wide divergence is worrying,” he added. “Most of the other data seems to fit better with the establishment survey, although we are seeing evidence of a weak labor market.”
In particular, there are fewer jobs, hiring has pulled back, people are not as willing to test the waters and are staying put in their current jobs; and, perhaps most importantly, layoff activity has steadily increased in recent weeks.
Last week, there were an estimated 238,000 first-time claims filed for unemployment benefits, an increase of 4,000 from a week earlier, according to Labor Department data released Wednesday. The latest increase brought the four-week average of initial claims to the highest level since August 2023.
Also, Americans are staying out of work longer: Continuous 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 increase in claims has Tilley closely watching a key data point in the monthly jobs report: People unemployed for reasons of unemployment.
“On a three-month average basis, that’s about 200,000 people from last year,” Tilley said. “And this metric of permanent job losses, year over year, is almost never positive in an expansion. It has never been 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 onion from what looks like very strong job growth in raw numbers and look a little more closely… it paints a picture of a job market that has normalized and is in danger of slipping .”
However, other measures of layoff activity have not shown a worrisome increase.
US-based employers announced fewer job cuts last month than in May; however, these layoff reports are much higher than last year, according to data released Wednesday by Challenger, Gray & Christmas.
The job search firm counted 48,786 layoffs announced in June. This is nearly 24% less than the 63,618 layoffs announced in May, but 19.8% higher than the 40,709 layoffs announced in June last year.
As of August 2022, monthly wage 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 the same unemployment rate at a time when the native-born population is stagnating,” Pollak told CNN via email. “A major reason is immigration and its effect on labor supply.”
Immigrants accounted for 43% of labor gains in 2024, Rachel Sederberg, senior economist at labor market research firm Lightcast, told CNN Business. In May, that percentage rose to 280%, as immigrant earnings more than compensate native-born workers who left the workforce, she said.
Immigrant job gains have become another flash point in an already highly contested presidential election. During last week’s CNN debate between President Joe Biden and former President Donald Trump, the latter falsely claimed that all of the job gains since Biden took office were made by illegal immigrants and “recovery jobs “.
“Most research does not find that immigration hurts employment outcomes for native-born Americans because immigrants are both consumers and producers of goods and services, so they may increase competition for jobs in some fields, but they also increase demand for goods. and services, which creates jobs. Pollak pointed out.
Average Hourly Earnings: Workers’ wage increases have slowed and this is expected to continue in June. Economists expect month-on-month gains to be around 0.3%, down from 0.4% in May, and for annual gains to ease to 3.9% from 4.1%.
This is an indicator that Federal Reserve officials have been watching closely as a potential inflationary pressure.
Fed Chairman Jerome Powell said Tuesday that the labor market has seen a “pretty substantial move” back to a better balance. Speaking at the ECB’s annual conference in Portugal, Powell noted that the unemployment rate was moving towards a “more sustainable level”, as was wage growth.
“Wage increases are still slightly above where they would end up in equilibrium; but still, you can see that the job market is cooling down properly,” he said. “We’re watching it very carefully, but it doesn’t look like it’s heating up or posing a big problem for inflation.”
Labor force participation rates: While working-age women have experienced record employment in recent months, other measures of labor force participation continue to remain below pre-pandemic levels.
The overall labor force participation rate fell in May to 62.5% from 62.7%, reversing the progress made earlier this year.
Part-time employees: New data from employment site Indeed showed 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 full-time hours but can’t get them, which is potentially an indication of a softening labor market,” according to Lightcast’s Sederberg. “That said, the number of people who are involuntarily part-time is still very, very low.”