The highlight of the coming week will be Friday’s May jobs report – a key gauge of the labor market’s health as economic momentum continues to cool. Investors, policymakers and businesses alike are closely watching whether the hiring slowdown seen this spring is the start of a broader economic soft patch or simply a return to a more sustainable pace after the post-pandemic boom.
April’s payrolls came in stronger than expected, rising by 177,000 jobs and beating the consensus forecast of 130,000. However, that headline number masked a softer trend: prior months saw significant downward revisions, with February and March payroll gains lowered by a combined 58,000 jobs. Accounting for these changes, the underlying pace of job growth has slipped to an average of about 152,000 jobs per month over the past year.
Looking ahead to the May report, expectations are for an even further slowdown – economists forecast just 125,000 new jobs added, the weakest monthly gain in over a year. The unemployment rate is projected to remain unchanged at 4.2%, still historically low, but there are signs of stress building beneath the surface. Continued claims for unemployment benefits are on the rise, and a steady flow of new layoffs has contributed to a gradually growing pool of job seekers.
Wage growth is also decelerating, with year-over-year gains expected to continue trending lower. This moderation in earnings suggests that, while workers are still seeing some improvement in paychecks, the days of outsized wage gains may be behind us for now.
The drivers behind this month’s forecast reveal why the labor market picture remains steady but fragile. The dominant factor is the persistence of the unemployment rate – April’s 4.2% accounts for over 85% of the prediction power and suggests strong momentum toward stability. However, total unemployment claims, now at their highest level since 2021, are the next most important input, hinting at stable but slightly elevated flows into unemployment. While the unemployment rate has shown persistence, rising unemployment claims suggest a labor market that is less robust than headline numbers imply.
As such, this week’s unemployment claims report – not Friday’s BLS employment situation – may offer the clearest signal yet on whether the job market can stay resilient in the face of slowing growth and elevated uncertainty, or if a turning point is at hand for the post-pandemic expansion.
Beyond the labor market, markets will be laser-focused on commentary from Fed Chair Jerome Powell and Governor Christopher Waller – two of the FOMC’s most influential voices. Investors will parse their remarks for any shift in tone regarding the stability of the labor market, especially with the probability of a June rate cut now just 2.2%, though traders still expect two rate cuts in 2025. Meanwhile, construction spending – a key indicator of economic momentum – fell in March, driven by a drop in residential construction. With housing starts showing a modest rebound in May, economists expect total construction spending to have increased slightly in April.
In sum, a week packed with pivotal data and central bank signals will shape expectations for the months ahead.
