Why Friday’s jobs report could be one for the record books

The US job market showed a softer side in April when just 175,000 jobs were added, marking one of the weakest months in the past three years.

It was also well shy of economists’ expectations (for 235,000 jobs added) and sharply lower than the 315,000 net gain for March.

It’s all relative, though. The 175,000 is in line with what was seen pre-pandemic and the neutral rate of job growth to keep pace with population gains.

Based on initial estimates, May’s jobs report from the Bureau of Labor Statistics, due out Friday at 8:30 am ET, could be similar: Economists are expecting job growth of 180,000 payrolls and an unemployment rate that holds tight at 3.9%. If the jobless rate stays below 4%, it would extend a streak not seen since the early 1950s.

In its battle to bring down inflation, the Federal Reserve has wanted to see demand cool off so as to take the heat off price hikes and for the labor market to ease into a “better balance” of the supply and demand of workers — all without causing a spike in joblessness or triggering a recession.

“The labor market is still strong and solid; but at the same time, it is moving toward that ‘soft landing’ scenario, a narrative that we’ve been talking about for so long,” Elizabeth Crofoot, senior economist at labor data analytics firm Lightcast, told CNN, referencing the process of reining in inflation without sending the economy into recession.

“This is it,” she said. “This is [the soft landing].”

The slew of complementary employment data released in advance of Friday’s report seems to be teeing up just that: Job openings are shrinking, hiring is slowing, people aren’t quitting as much; however, layoff activity remains muted.

“I think all of these measures are pretty much in line with things are cooling but in a very gradual descent,” said Crofoot, who formerly served as an economist for the BLS. “We don’t want the labor market to crash and burn, we want it to do what it’s doing, which is a gradual softening.”

A report for the record books

The May jobs report could cement a trend that the US hasn’t seen since the early 1950s: If the jobless rate comes in as expected, it would mark the 28th consecutive month of sub-4% unemployment, which would be the longest streak in more than 70 years.

“If unemployment stays below 4% for the 28th consecutive month, it will be cause for celebration,” economist Dean Baker, co-founder of the Center for Economic and Policy Research, wrote in a note on Tuesday. “If the other data in the jobs report looks like they did in April, then it should help the Fed feel more comfortable about lowering interest rates.”

If the unemployment rate were to come in at or above 4% — something that’s not expected, given broader labor data but also not impossible, because the data that feeds into the monthly measurement is volatile — it could have a psychological effect, said Julia Pollak, chief economist with online job site ZipRecruiter.

“4% is thought of as a magical number — a number below which participation rises, below which we tend to see employment rates increase faster for women and for minorities,” she said. “Employers in a tight labor market, they have to do extraordinary things; they have to cast a wider net; they have to actively recruit non-traditional candidates; they have to offer more attractive job conditions, more flexibility, think about installing air conditioning in their trucks or offering a bus to employees. So, it is kind of a magical number.”

First-time claims for unemployment benefits are still hovering well below pre-pandemic norms. On Thursday, the Department of Labor reported that Americans filed 229,000 initial claims for unemployment insurance during the week ended June 1.

Although it’s the highest weekly total in a month, last week’s tally is below the average of 311,000 filings seen during the decade before the pandemic.

A separate report released Thursday showed that fewer job cuts were announced in May than both the month and year before.

US-based employers announced 63,816 job cuts last month, down 1.5% from April and 20% below May 2023, according to a Challenger, Gray & Christmas report released Thursday.

“Job cuts remained flat in May as companies assess performance and make plans for [the third and fourth quarter],” Andrew Challenger, senior vice president of the outplacement and business research firm, said in a statement.

However, Challenger also cautioned that the slowdown in activity could be an indication of not merely softness but of weakening.

“Meanwhile, hiring announcements are at their lowest levels in a decade,” he said. “The typical churn in a healthy labor market appears to be stalling.”

Beyond the payrolls and unemployment rate

Although the initial consensus is for the job gains to remain stable but solid, economists are keeping close watch on a few key trends within the report:

Average hourly earnings: The Fed has been closely watching wage growth out of concern that faster-than-typical pay gains may put upward pressure on inflation. Wage gains have slowed, but remain above pre-pandemic levels. Economists are expecting for average hourly earnings to hold steady at an annual growth rate of 3.9%, which is about 0.9 percentage points higher than in February 2020, BLS data shows.

Foreign-born workers: In addition to high labor force participation rates among prime working age individuals, specifically prime working-age women, the US labor market is benefiting from a boom in immigrant workers. The number of employed foreign-born workers set a record high of 31.1 million people in March and dipped to 30.5 million in April.

State and local public education: The Elementary and Secondary School Emergency Relief program expires in September, and schools are bracing for potentially negative outcomes, including widespread layoffs. Some of these workforce moves typically come at the end of the school year, meaning the May jobs report and June report could show the effects.

“There’s just uncertainty around the magnitude and the timing,” said Ryan Sweet, chief US economist for Oxford Economics.

Share of unemployment due to quits: In 2019, the share of unemployment due to voluntary quits averaged 13.6%; and in April 2024, it measured 12%, CEPR’s Dean Baker noted earlier this week. “One anomaly in recent job reports has been the relatively small share of unemployment due to voluntary quits,” he wrote. “This is a measure of people’s confidence in the labor market, since it indicates that they are willing to leave a job before they have a new one lined up.”

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