Job seekers attend the JobNewsUSA.com South Florida Job Fair held at Amerant Bank Arena on June 26, 2024 in Sunrise, Florida.
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With signs that the labor market is at least slowing, if not worse, the June nonfarm payrolls report takes on added significance.
Payroll gains so far in 2024 totaled 1.24 million, down about 50,000 a month from the same period a year ago. Economists polled by Dow Jones expect the report, due out Friday at 8:30 a.m. ET, will show growth of 200,000, up from 272,000 reported for May.
In historical terms, the rate of job growth is still steady. However, there are signs underneath that conditions could soften and possibly point to broader economic weakness on the way.
“This is a report that comes at a point where there is a little more uncertainty about the economic landscape than there has been for a few months,” said Nick Bunker, head of economic research at Indeed Hiring Lab. “Specifically, I’m thinking more about the unemployment rate, which is slowly trending upward.”
The unemployment rate in May rose to 4%, the first time it has reached that mark since January 2022, from 3.7% a year ago. The forecast is that the interest rate will remain there.
Under normal circumstances, a 4% unemployment rate would be cause for celebration, not concern. However, what catches the eye of some economists is where the rate now compares to where it was last year.
The May rate was 0.5 percentage point above a 12-month low of 3.5% in July 2023, potentially triggering a recessionary indicator called the Sahm rule. The rule has consistently shown that whenever the three-month average unemployment rate eclipses the 12-month low by half a percentage point, the economy is in recession.
While there is little evidence that a recession is on the way, the unemployment trend is causing some concern.
“If the unemployment rate does what it’s been doing here lately, where it’s been rising very slowly, I don’t think that means we’re at very high risk of triggering a Sahm rule or any kind of unemployment rate-based measure of entering a recession,” Bunker said. “That said, the likelihood of that happening has increased, even if it’s not the most likely outcome right now.”
The economy slowed in the first half of 2024. First-quarter growth as measured by gross domestic product rose to 1.4% annualized ratewhile the Atlanta Federal Reserve tracks growth of just 1.5% in the second quarter.
There are also lingering inflation concerns that could keep the Fed on the sidelines for a while longer when it comes to cutting interest rates.
In addition to the payrolls headlines and unemployment numbers, market participants and economists will be watching several other key metrics.
Another area of concern was the discrepancy between the number of nonfarm payrolls, as obtained from institutions participating in the Bureau of Labor Statistics survey, versus the number of households reporting people holding jobs.
While the establishment survey showed wages rose by about 2.8 million over the past 12 months, the number of households, used to calculate the unemployment rate, rose by just 376,000. Economists generally consider facilities research to be more reliable and less volatile because it includes a larger sample size, but the difference has garnered some attention.
In addition, hours worked and average hourly earnings will receive some attention as gauges of inflation.
The forecast is for a monthly salary of 0.3% and a 12-month increase of 3.9%. If the outlook holds true, it will be the first time annual growth has been below 4% since June 2021.
