There are growing signs that the labor market is slowing, and the June nonfarm payrolls report is particularly important.

So far in 2024, job gains totaled 1.24 million, about 50,000 fewer per month than a year ago. Economists surveyed by Dow Jones expect the report to show 200,000 new jobs, down from 272,000 in May.

The pace of job gains remains solid by historical standards. But there are signs that economic conditions may be softening and could foreshadow broader economic weakness ahead.

“This report comes at a time when there is more uncertainty about the economic outlook than in recent months,” said Nick Bunker, director of economic research at Indeed Hiring Lab. “Specifically, I’m thinking more about the unemployment rate, which has been slowly rising.”

The unemployment rate did rise slightly to 4% in May, the first time it has reached that threshold since January 2022, and up from 3.7% a year ago. Forecasts show the unemployment rate will remain at this level.

Under normal circumstances, a 4% unemployment rate would be cause for celebration, not worry. However, what some economists are concerned about is how the unemployment rate compares to where it has been over the past year.

The May unemployment rate was half a percentage point above the 12-month low of 3.5% hit in July 2023, which could trigger a recession indicator known as Sam's Rule, which states that an economy is in recession when the three-month average unemployment rate is 0.5 percentage point above the 12-month low in the unemployment rate.

While there is little data to suggest a U.S. recession is imminent, trends in the unemployment rate are causing some concern.

“If unemployment rises slowly as it has been for some time, I don’t think that means we have a good chance of triggering Sam’s Rule, or any unemployment-based recession predictor,” Bunker said. “That being said, the probability of that happening has risen, even if it’s not the most likely outcome at this point.”

The U.S. economy slowed in the first half of 2024. U.S. GDP grew at an annualized rate of 1.4% in the first quarter, while the second-quarter growth rate tracked by the Atlanta Fed was only 1.5%.

In addition, inflation concerns remain, which may make the Federal Reserve reluctant to cut interest rates for a longer period of time.

In addition to the headline jobs and unemployment data, market participants and economists will also be watching several other key indicators.

Furthermore, there is a difference between the nonfarm payrolls provided by businesses participating in the Bureau of Labor Statistics survey and the number of households reporting that they have a job.

While business surveys show employment has increased by about 2.8 million in the past 12 months, the number of households used to calculate the unemployment rate has increased by only 376,000. Economists generally believe that the nonfarm report is more reliable and less volatile because it covers a larger sample size, but the discrepancy has still attracted attention.

Economists also said hours worked and average hourly earnings will receive some attention as measures of inflation.

The agency predicts that wage growth will be 0.3% month-on-month and 3.9% year-on-year. If the forecast comes true, it will be the first time since June 2021 that the year-on-year growth rate has been lower than 4%.

The article is forwarded from: Jinshi Data