Job seekers attend the JobNewsUSA.com South Florida Job Fair taking place on June 26, 2024 at the Amerant Bank Arena in Sunrise, Florida.
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With increasing signs that the labor market is at least slowing, if not worse, the June nonfarm payrolls report takes on added significance.
So far in 2024, wage gains have totaled 1.24 million, down about 50,000 per month from the same period last year. Economists polled by Dow Jones expect the report, due out Friday at 8:30 a.m. ET, to show growth of 200,000, compared to the 272,000 reported in May.
Historically, the pace of employment growth is still solid. But there are signs that conditions could be weakening, potentially pointing to broader economic weakness in the future.
“This is a report that comes at a time when uncertainty about the economic landscape is slightly higher than it has been in several months,” said Nick Bunker, head of economic research at Indeed Hiring Lab. “Specifically, I’m thinking more about the unemployment rate, which is slowly increasing.”
The unemployment rate actually rose to 4% in May, the first time it has reached that threshold since January 2022, up from 3.7% a year ago. The forecast assumes that the price will stay there.
Under normal circumstances, a 4% unemployment rate would be cause for celebration, not concern. But what catches some economists’ eyes is where the rate is now compared to last year.
The May rate was 0.5 percentage points above its 12-month low of 3.5% in July 2023, potentially triggering a recession indicator called the Sahm rule. The rule has shown time and time again that the economy is in recession whenever the three-month average unemployment rate exceeds its 12-month low by half a percentage point.
While there is little data to suggest a recession is imminent, unemployment trends are drawing some attention.
“If the unemployment rate here, where it’s been rising very slowly, does what it has been doing for some time, 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. “Nevertheless, the likelihood of this has increased, even if it is not the most likely outcome at this time.”
The economy slowed in the first half of 2024. Growth as measured by gross domestic product rose 1.4% on an annual basis in the first quarter, while the Atlanta Federal Reserve reported only 1.5% growth in the second quarter.
Additionally, there are ongoing concerns about inflation, which could cause the Fed to hold off on rate cuts for a while.
In addition to the key wage and unemployment numbers, market participants and economists will be keeping an eye on several other key metrics.
Another area of concern is the divergence between the number of nonfarm payrolls measured by farms that responded to the Bureau of Labor Statistics survey and the number of households with people reporting to have a job.
While the business survey showed that the number of employees increased by around 2.8 million in the last 12 months, the number of households used to calculate the unemployment rate only increased by 376,000. Economists generally consider the business survey to be more reliable and less volatile because it includes a larger sample size, but the inequality has attracted some attention.
In addition, attention will be paid to hours worked and average hourly wages as indicators of inflation.
The forecast assumes a monthly salary increase of 0.3% and a 12-month increase of 3.9%. If the outlook holds true, it will be the first time since June 2021 that the annual increase has been below 4%.
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2024-07-04 12:45:29
www.cnbc.com
