The closely watched monthly employment report from the Bureau of Labor Statistics is due to be released Friday morning. The consensus among economists polled by Refinitiv is that 350,000 jobs were added last month, with an unemployment rate of 3.5%. That would be a new pandemic-era low.
The labor market has nearly recovered to its pre-pandemic strength, with the US just 1.2 million jobs short of where it was before the shutdowns began and unemployment a hair above the pre-pandemic level of 3.5% as of April. With more job growth expected for May, this is set to improve further.
Now, the focus has shifted from the “Great Reopening” to whether the Federal Reserve’s attempt at a “soft landing” by raising interest rates to tame inflation will inadvertently plunge the economy into recession.
In the first quarter of 2022, the US economy shrank, as measured by gross domestic product, the broadest data tracking economic activity. The common definition of a recession necessitates two straight quarters of declining GDP, which seems an uncomfortably close possibility for America.
But some economists are quick to point out that one common feature of recessions is missing in the mix: The labor market is still going strong.
“The consumer is the key, in our view, especially in hiring trends. More people with jobs, which come with additional income, provide the support for continued spending,” said Mike Skordeles, a senior US macro strategist at Truist Advisory Services.
Consumer spending is the backbone of US economic growth. And even though inflation has been going through the roof, the tight labor market has helped keep people spending for now.
Skordeles said he closely tracks weekly initial jobless claims, as any weakness will show up in that data first. But so far, it hasn’t.
“If we see a sustained substantial increase in weekly jobless claims, then we’ll shift our recession stance,” he said.
Initial weekly jobless claims for the week ending May 28 were down 11,000 from the previous week, with 200,000 applications for first-time unemployment benefits.
Private payrolls provider ADP reported Thursday that employment rose by just 128,000 in May, far below the Refinitiv estimate of 299,000. Additionally, April data was revised down to 202,000 job gains from the previously reported 247,000.
Expectations for the May jobs report
If Friday’s government report shows that 350,000 jobs were added to the economy in May, that would be a slowdown from March and April, when 428,000 positions were added each month, and it would make it the slowest job growth since April 2021.
An unemployment rate that dips to 3.5% would match the historic low from before Covid hit. The last time joblessness was this low prior to 2019 was in 1969. The same unemployment rate was expected in April, but didn’t come to fruition. The unemployment rate in April was 3.6%.
Either way, the slowdown in job growth is expected and is nothing to worry about for now: Economists anticipate a slowing of job growth this year as the labor market recovery moves into a new phase. In April, there were nearly two available positions for every unemployed person, according to the Job Openings and Labor Turnover Survey released on Wednesday.
And while businesses are offering higher wages to attract staff, competing for talent in this tight labor market has taken its toll: A record number of Americans quit their positions in March, with many choosing to move on to better opportunities.
“Many employers are still zealously trying to increase their head count and workers, it seems, are still hesitant to commit,” said ADP chief economist Nela Richardson in a blog post. “Despite labor shortages, workers aren’t coming out ahead, thanks to inflation. Real wages, or wages adjusted for inflation, fell 2.6% in April, similar to the decline in March – another plateau.”
If the high prices Americans are facing in the grocery store and at the gas pump take over as the main driver for consumer behavior, the economy could look very different by the end of the year. For now, the Fed predicts the US job market will remain tight and that will keep supporting consumer spending. The appetite to hire keeps providing a backstop as well.
“We’re not seeing a turn in the job market just yet, though we are hearing more from employees that they’re concerned about a potential downturn and layoffs,” said Daniel Zhao, senior economist at Glassdoor.