The labour market may be awakening from its dormancy. Economists anticipate that Friday’s jobs report will indicate an addition of 105,000 jobs to the US economy in May, with the unemployment rate remaining stable at 4.3%. If Friday’s monthly total aligns with expectations – and the previous months’ figures remain largely unchanged – it would signify three consecutive months of job additions exceeding 100,000. That kind of hat trick hasn’t been accomplished since the first quarter of 2024. While one month does not establish a trend, three certainly appear to signal the beginning of one: Job gains exceeding 100,000 may suggest that the labour market is stabilising. However, it is not that straightforward: The labour market is undergoing a multifaceted transformation, characterised by numerous interrelated components. At play are structural changes, a generational technology movement, and a slew of external variables, to name a few. “It’s just in this place where we’re really resetting a new normal, what normal is going to look like, and what a ‘good jobs report’ will look like moving forward, which is different than it was pre-pandemic and from historical trends,” said Nicole Bachaud. It is also evident in the deceleration of job growth, according to Nela Richardson. “The jobs are more likely to be part-time, they’re more likely to be in healthcare, they are more likely to be low-paying,” Richardson said. It is important to consider several additional dynamics to monitor in the report scheduled for Friday: Healthcare and social assistance – a sector buoyed by an ageing population – has transitioned from being a catalyst for job creation to serving as a foundational support for the entire labour market. The sector, one of the nation’s largest, constitutes 15% of total employment. “My concern for the last two years is how one-note the labour market was,” Richardson stated. “Basically, all the job gains came from healthcare. Nothing in manufacturing. Construction ebbs and flows with cyclical interest rates. And no sense of broad-based hiring.” Construction experiences fluctuations in alignment with cyclical interest rates. And there is a lack of broad-based hiring. That seems to be evolving, Richardson stated.
ADP’s recent monthly employment reports, including the one for May released Wednesday, indicate that job gains are accelerating across a broader spectrum of industries within the private sector. When Friday’s report is released, one metric to monitor will be the Diffusion Index, which offers an assessment of job growth across key industries. A number greater than 50 signifies that a greater number of industries are creating jobs rather than eliminating them. Wage gains have been decelerating from their post-pandemic peaks; however, over the last three years, they have continued to surpass inflation rates. That changed in April, when the oil supply crunch resulting from the US-Israeli conflict with Iran, along with the subsequent price shock, propelled inflation to 3.8%. Average hourly earnings that month increased at a rate of 3.6%. “An uptick in wage growth would be beneficial for workers grappling with rising prices; however, it would simultaneously steer the Federal Reserve towards the possibility of rate hikes,” Dean Baker, noted in a communication on Wednesday. Businesses seem to be viewing the recent increase in fuel prices as a fleeting phenomenon rather than a long-term shift, according to Bachaud. Consequently, a significant or noticeable decline in hiring or an increase in layoffs is not anticipated, she noted, emphasising that key sectors to monitor will be transportation, retail, and construction. Employment in the transportation sector is projected to decline in May due to Spirit Airlines ceasing its operations on May 2, resulting in 17,000 employees and contractors losing their jobs. Layoff announcements increased in May, as indicated by a recent report published Thursday morning by Challenger, Grey & Christmas.
The outplacement and coaching firm reported 97,006 job cuts announced at US-based firms, reflecting a 16% increase from April and a 3% rise compared to May of the previous year. The majority of the reductions occurred within technology firms, with artificial intelligence once again cited as a primary factor driving these planned cuts. While mass layoffs, particularly those linked to AI, dominate the news cycle, economists remain measured in their response. They observe that claims for unemployment benefits have not surged significantly and continue to hover around historic lows. Last week, there were approximately 225,000 initial claims for unemployment insurance, reflecting an increase of 13,000 from the previous week. Weekly claims data can exhibit volatility, especially during holiday periods; thus, analysts monitor the four-week moving average, which has increased to 214,750 claims. (For perspective, that average was 228,500 in the March 2020 week before the initial Covid-19 shutdown.) AI adoption in the workplace is still in its nascent stages, according to Bachaud. “We have not observed any significant job displacement or substantial growth,” she stated. Rather, AI’s fingerprints are evident in the evolving job skills and the increasingly indistinct boundaries between various roles, she stated. The excitement surrounding AI is advancing at a pace that outstrips the practical realities faced by everyday businesses, as well as the capacity of companies to adapt, Bachaud noted. Job offers for AI-specific roles, for example, have been rescinded more than for any other job, she said. “(Businesses) perceive themselves as lagging, and there exists considerable pressure to accelerate their pace; however, the hiring process remains considerably sluggish,” she stated.
It can also elucidate some of the dissonance observed in the recent labour turnover data, where job openings surged in April while hiring continued to be constrained. “There’s a bit of a mismatch and skill level between what employers want to hire for and what job seekers are offering,” Bachaud stated. That mismatch extends beyond AI, as noted by ADP’s Richardson, highlighting shortages in speciality trades where retirements significantly outpace the inflow of new workers. “The most powerful trend currently observable in the labour market is demographics; it is overwhelming all other factors,” Richardson stated. “And it lacks allure and is not capturing attention in the same manner [as AI].” Throughout much of the previous year, recruitment was hampered by significant uncertainty surrounding the implications of policy changes, tariffs, interest rates, and geopolitical issues. What resulted was a stilted pattern of hiring, Richardson stated. “You’ll observe strength, followed by a pullback associated with a headline,” she stated. “And that part will last maybe a season, maybe a couple of months, and then you’ll see the hiring restart.” Uncertainty persists in influencing the labour market; however, it does not surpass the eagerness of businesses to expand their workforce, according to Eugenio Aleman. “One reason is that there’s less uncertainty about tariffs; a second reason is that firms have been able to learn from last year’s events and are now beginning to advance with employment decisions – particularly as the economy continues to grow,” he stated.