US job growth slowed in June, latest employment data shows

Wall Street was quiet Friday ahead of the monthly jobs report.

S&P and Nasdaq futures were little changed and Dow futures were a couple of points lower.

It's been a shortened week for traders, with markets closing early Wednesday and closed all day Thursday in observance of the July 4th holiday.

Investors are looking for another Goldilocks jobs report Friday that shows a gentle cooling-off of the labor market. Wednesday's ADP data, which showed that private payrolls fell to 150,000, created little reaction among traders — but the government's monthly tally will likely trigger more of a response.

In May, the US unemployment rate increased to 4%, a rate that hadn’t been seen since January 2022. Still, job growth remained strong in May, coming in at an estimated net gain of 272,000.

Economists largely expect that job gains cooled off in June. As of Tuesday, FactSet consensus estimates are for a 190,000 net gain.

First-time claims for unemployment benefits (considered a proxy for layoffs) have drifted higher in recent weeks, landing in line with pre-pandemic averages.

“They’re still low, historically speaking, but they are up between the May and June payroll survey reference months, so we do think we could see some slowdown in job growth over the month,” Marisa DiNatale, head labor economist for Moody’s Analytics, told CNN in an interview.

June's monthly job gains should remain strong and steady, but gradually cooling: Economists expect the US economy added 190,000 jobs last month, a pullback from the stronger-than-expected 272,000 gain in May.

Still, there’s a growing chorus of data that shows the economy is slowing, consumer spending is letting up and workers are feeling less secure.

As such, Friday’s report could provide a crucial signal as to whether the jobs market is at a stable or even pre-pandemic state — or is perhaps weaker than advertised.

“I think as long as the job gains continue to show a gradual cooling, this economy is in good shape,” said Nela Richardson, ADP’s chief economist, during a call with reporters on Wednesday following the payroll processor’s latest report showing job and wage gains slowed in the private sector.

ADP estimated that private employers added 150,000 jobs last month, down from 157,000 in May.

“If we see the cooldown go from gradual to steep, I think that’s a warning,” she said.

The labor market appears to be at a crossroads, said Nick Bunker, Indeed Hiring Lab’s head of economic research.

“The words ‘little changed’ were repeated no fewer than a half dozen times in the May JOLTS release, and virtually every key indicator tracked showed limited notable movement, either up or down,” Bunker wrote in a note Tuesday. “This short-run stability is a good thing. But the question remains if this period of calm can continue or if more unsteady times are on the horizon.”

“This current level of job openings is consistent with a healthy, sustainable and balanced market, but any continued declines below these current levels will quickly become more worrisome,” he wrote.

It may take an interest rate cut to ensure employers’ demand for workers doesn’t tumble too far, he added.

Federal Reserve officials still broadly believe the job market remains on solid footing, which is allowing central bankers to comfortably keep interest rates perched at a 23-year high as they await more evidence that inflation is under control.

But some Fed officials have noted that the job market has lost momentum recently and that it’s highly unclear whether it will continue to hold steady or weaken further.

“If employment starts falling apart or if the economy begins to weaken, of which you’ve seen some warning signs, you’ve got to balance that off with the progress you’re making on the price front,” Chicago Fed President Austan Goolsbee told Bloomberg TV this week during a conference hosted by the European Central Bank in Sintra, Portugal.

“The unemployment rate is still quite low, but it has been rising,” he said.

Average hourly earnings: Workers’ pay gains have been slowing, and that’s expected to continue in June. Economists expect that the month-on-month gains should come in around 0.3%, from 0.4% in May, and for annual gains to cool to 3.9% from 4.1%.

This is an indicator that Federal Reserve officials have watched closely as a potential inflationary pressure.

Fed Chair Jerome Powell on Tuesday said the labor market has seen a “pretty substantial move” toward getting back into a better balance. While speaking at the ECB’s annual conference in Portugal, Powell noted the unemployment rate was moving up toward “a more sustainable level,” as were wage increases.

“Wage increases are still a bit above where they would wind up in equilibrium; but nonetheless, you can see the labor market is cooling off appropriately,” he said. “We’re watching it very carefully, but it doesn’t look like it’s heating up or presenting a big problem for inflation.”

Labor force participation rates: While prime working-age women have experienced record-high employment in recent months, other measures of labor force participation continue to remain below pre-pandemic levels.

The overall labor force participation rate dipped in May to 62.5% from 62.7%, reversing progress made earlier this year.

Part-time workers: New data from employment site Indeed indicated that employers are looking to hire more part-time workers.

The number of involuntary part-time workers has increased in recent months.

“They’d like full-time hours but can’t get them, which is potentially an indicator of a softening labor market,” said Rachel Sederberg, senior economist at labor market research firm Lightcast. “That said, the number of people who are involuntarily part time are still very, very low.”

Last week, there were an estimated 238,000 first-time claims filed for unemployment benefits, an increase of 4,000 from the week before, according to Department of Labor data released Wednesday. The latest uptick brought the four-week average of initial claims to its highest level since August 2023.

Also, Americans are staying unemployed for longer: Continuing claims, which are filed by people who have received benefits for at least a week or more, rose to their highest level since November 2021.

Luke Tilley, Wilmington Trust’s chief economist, told CNN he is closely watching an underlying datapoint of the monthly jobs report: Unemployed persons by reason for unemployment.

“On a three-month average basis, it’s up about 200,000 people from last year,” Tilley said. “And that metric of permanent job losers, year-over-year, is almost never positive in an expansion. It was never positive between 2010 and 2019; it was not positive in between the tech crash recession of 2001 and then 2008.”

He added: “So when you sort of peel back the onion from what looks like very strong job growth in a raw number count and look at it a little closer … that paints a labor market that has normalized and is at risk of slipping.”

Still, other measures of layoff activity haven’t shown a worrisome spike.

US-based employers announced fewer job cuts last month than they did in May; however, those layoff reports are trending well above last year’s, according to data released Wednesday by Challenger, Gray & Christmas.

The outplacement and workplace research firm counted 48,786 cuts announced in June. That’s down nearly 24% from the 63,618 cuts announced in May, but 19.8% higher than the 40,709 cuts announced in June last year.