CNN
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The U.S. labor market has held up despite swirling forces—high inflation, an aggressive campaign of interest rate hikes, the aftershocks of the pandemic and geopolitical uncertainty—that seemed almost certain to trigger a recession.
Monthly job creation has often been stronger 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 the Wilmington Trust, told CNN in an interview. But, he warned, “it would be concerning if things got worse from here.”
Economists don’t believe job gains will fall dramatically when the Bureau of Labor Statistics releases June employment data Friday morning.
In fact, monthly payroll gains are expected to remain strong and steady, but are expected to gradually slow: Economists expect the U.S. to have added 190,000 jobs last month, down from a stronger-than-expected gain of 272,000 in May, and for unemployment to hold steady at 4%, according to FactSet’s consensus estimate.
Still, there is growing evidence that the economy is slowing, consumer spending is slowing and workers are feeling less secure. So Friday’s report could provide a crucial signal about whether the jobs market is in stable, even pre-pandemic, shape or whether it may be weaker than expected.
“I think as long as job gains continue to show a gradual slowdown, this economy is in good shape,” ADP chief economist Nela Richardson said on a call with reporters Wednesday after the payroll processor’s latest report showing that job and wage gains have slowed in the private sector.
ADP estimates that private employers added 150,000 jobs last month, down from 157,000 in May.
“If we see the cooling going from gradual to abrupt, I think that’s a warning,” she said.
In May, the two surveys that feed into the monthly jobs report appeared to tell different stories: The business survey showed employers adding jobs at a continued strong pace, and the household survey showed a decline of 408,000 jobs.
While the establishment survey is considered the “gold standard” by economists, the household survey, which provides more detail on demographics and feeds into the unemployment rate, is considered more volatile because of its smaller sample size and lower response rates.
“Business and household surveys continue to show polarizing 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 significant divergence is puzzling,” he added. “Most of the other data appear to be more in line with the business survey, although we are seeing signs of weakening in the labor market.”
It is worth noting that there are fewer job openings, hiring has declined, people are not as willing to test the waters and are staying in their current jobs; and, perhaps most importantly, layoffs have been steadily increasing in recent weeks.
Last week, an estimated 238,000 initial claims for unemployment benefits were filed, an increase of 4,000 from the previous week, according to Labor Department data released Wednesday. The latest increase brings the four-week average of initial claims to its highest level since August 2023.
Additionally, Americans are staying unemployed longer: Continuing claims, filed by people who have collected benefits for at least a week or more, have reached their highest level since November 2021.
The continued rise in jobless claims has Tilley keeping a close eye on an underlying data point in the monthly jobs report: unemployed people by reason of unemployment.
“On average over three months, the number of people who lost their permanent jobs increased by about 200,000 compared to last year,” Tilley said. “And that measure 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 2001 recession and the 2008 recession.”
He added: “So when you peel back the onion of what appears to be very strong employment growth in terms of raw numbers and look at it a little bit more closely… it shows a labor market that has normalized and is at risk of collapsing.”
However, other measures of layoff activity did not show a worrying spike.
U.S.-based employers announced fewer job cuts last month than in May; however, those layoff reports are well above those of a year ago, according to data released Wednesday by Challenger, Gray & Christmas.
The outplacement and employment research firm counted 48,786 job cuts announced in June. That’s nearly 24 percent fewer than the 63,618 job cuts announced in May, but 19.8 percent more than the 40,709 job cuts announced in June last year.
Since August 2022, monthly payroll gains have averaged 250,000 per month, much faster than the 2019 average of 164,000, noted Julia Pollak, chief economist at ZipRecruiter.
“In other words, we’re getting much higher job growth with about the same unemployment rate, at a time when the US-born population is stagnating,” Pollak told CNN via email. “A big reason is immigration and its effect on the labor supply.”
Immigrants accounted for 43% of the labor force increase in 2024, Rachel Sederberg, senior economist at labor market research firm Lightcast, told CNN Business. By May, that share had skyrocketed to 280%, as immigrant gains more than offset those of native-born workers who left the labor force, she said.
Immigrant job creation has become another point of contention in an already contentious presidential election. During last week’s CNN debate between President Joe Biden and former President Donald Trump, Trump falsely claimed that all job creation since Biden took office was due to illegal immigrants and “rebound jobs.”
“Most research does not show that immigration hurts the employment outcomes of 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 noted.
Average hourly wage: Wages have slowed and that trend is expected to continue in June. Economists expect monthly gains to come in at about 0.3%, down from 0.4% in May, and annual gains to slow to 3.9%, down from 4.1%.
It’s an indicator that Federal Reserve officials are watching closely as a potential inflationary pressure.
Fed Chairman Jerome Powell said Tuesday that the labor market has made a “fairly substantial shift” toward better balance. Speaking at the ECB’s annual policy conference in Portugal, Powell noted that the unemployment rate is moving toward “a more sustainable level,” as are wage increases.
“Wage increases are still a little bit higher than they should be in equilibrium, but we are seeing the labor market calm down appropriately,” he said. “We are monitoring the situation very closely, but it does not appear that it is improving or that it is a big inflation problem.”
Labor market participation rate: While working-age women have seen record employment rates in recent months, other measures of labor force participation remain below pre-pandemic levels.
The overall labor force participation rate fell in May from 62.7% to 62.5%, 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 work full time but can’t, which is potentially an indicator of a slowdown in the labor market,” says Lightcast’s Sederberg. “That said, the number of people who are working part time involuntarily remains very, very small.”
