Hiring has downshifted in recent months, raising concerns of a slowdown after a decade of growth. The unemployment rate has dipped to a 50-year low and weaker payroll growth could be a sign there are fewer workers to hire. The latest batch of employment data, expected Friday at 8:30 a.m. ET, will help sort out crosscurrents, from resilient consumers to brittle manufacturing. Here is what to watch in the Labor Department’s June jobs report:
Job Creation… Watch to see whether hiring bounced back in June. Economists surveyed by The WSJ expect employers added 165,000 jobs to payrolls last month. That would be a sharp uptick from a very soft gain of 75,000 in May, but well below last year’s pace. More broadly, job creation in the U.S. appears to be returning to pre-tax-cut levels.
In the three-month period ended in May, employers added an average of 151,000 jobs a month. That average is trending at the slowest pace since late 2017, just before tax cuts were enacted. Hiring, which accelerated last year to match an economy expanding at better than a 3% pace, is now slowing to something more consistent with 2% growth—where the U.S. was during most of the expansion.
Trade Winds… Keep a careful eye on which sectors are adding jobs and which aren’t. After surging last year, manufacturing employment has held essentially flat so far in 2019, suggesting trade tensions are driving caution. But hiring also has cooled in some industries less exposed to the global economy, including construction and information. That suggests a broader hiring slowdown consistent with an economy coming down from the stimulus of tax cuts.
Economists generally expect that very low unemployment causes employers to boost wages to attract workers. And wages are growing—but that growth has been slowing, not speeding up. Check to see if the trend continues. Average hourly earnings have decelerated in 2019, to a 3.1% gain from a year earlier in May from 3.4% growth in February.
The three-month average annualized pace has been even slower at 2.73%, according to RSM economist Joseph Brusuelas. “It’s likely that wage growth has peaked in the current business cycle,” he wrote in a recent note to clients. “Which strongly suggests that the U.S. economy has entered the latter stages of the economic expansion.” Still, the current expansion, now the longest on record, could have plenty of room to run.
The unemployment rate is hovering at a 50-year low of 3.6%, and economists expect that rate continued in June. Conventional economic wisdom dictates that lower unemployment sparks wage inflation, which can spiral into wider inflation that is hard to tame.
Since wage gains have failed to accelerate further in 2019, that could give Federal Reserve policy makers wiggle room to cut the benchmark interest rate in hopes of sparking better growth, with less worry the push will go too far.
The share of women ages 25 to 54 who are working or looking for work ticked down to 75.5% in May after hitting a decade-high of 76% in January. If labor-force participation among these women has peaked, that bodes poorly for the overall prime-age participation rate, which has been disappointingly weak for much of this year.
The economy’s potential is shaped by its workers and their output. Watch to see whether a smaller share of the working-age population entered or remained in the labor force in June and who drives the trend.