The US job market is showing signs of vulnerability, despite its steady recovery from the pandemic-induced chaos. Friday’s jobs report is anticipated to reveal whether the labor market can continue its steady course or if cracks are starting to form. Federal Reserve Chair stated that multiple indicators suggest labor market conditions are strong, though not overheated.
Economists predict that July’s jobs report will show a net gain of 175,000 jobs and an unemployment rate steady at 4.1%. However, economists also note the potential for rapid weakening due to unexpected shocks or prolonged high-interest rates. Hiring activity has declined, with fewer job postings and rising unemployment insurance claims indicating an increase in joblessness.
Last week, first-time jobless benefit claims climbed to 249,000, the highest since last August. Continuing claims rose to 1.877 million, a level not seen since November 2021. The unemployment rate, now at 4.1%, mirrors figures from November 2021.
Nick Bunker, director of North American economic research at Indeed, suggests the uptick in unemployment might reflect more people joining the labor force.
Job market’s resilience under scrutiny
The employment-to-population ratio for prime working age (25 to 54 years old) remained at 80.8% in June.
The labor force participation rate increased to 62.6%, although it remains constrained by an aging workforce. There has been higher demand for part-time workers, especially in the restaurant industry, but the number of workers reporting they could only find part-time work for economic reasons remains comparable to pre-pandemic levels. Wage growth continues to decelerate.
The Employment Cost Index showed wages and benefits rising slower than expected in the second quarter, increasing just 0.9%. Economists expect this trend to continue in the upcoming jobs report. Industries such as health care, government, and, until recently, leisure, and hospitality, have been pivotal in driving job market growth.
However, employment gains have not been broad-based, instead reflecting a “rolling recession” where different sectors experience downturns and recoveries at varied times. While the labor market shows resilience, Friday’s report will be crucial in determining its current and future trajectory. The Federal Reserve’s actions and the economy’s response to potential shocks will play a significant role in shaping the job market’s path forward.
