Is the labor market turning a corner? Thursday’s jobs report will offer some key clues

By Alicia Wallace, CNN

(CNN) — For much of the past 18 months, the labor market has remained largely frozen.

Rampant uncertainty, a lasting hangover from pandemic-era overhiring, the rise of AI, and a cocktail of other economic concerns – persistently high inflation, elevated interest rates and a shrinking labor force – stifled businesses’ expansion plans and put hiring on ice.

But for the past few months, it’s been looking like a thaw is underway.

US employment growth has surpassed expectations, adding an average of 188,000 jobs per month since March.

It’s a stark turnaround from last year, when monthly gains averaged fewer than 10,000 jobs (or, roughly one-twentieth of what we’re seeing now); and it comes across all the more impressive considering the backdrop of a volatile war in the Middle East and a massive oil shock that heated up inflation.

It seems the labor market may have stabilized, and June’s jobs report – which is set to be released on Thursday, one day early, due to the July 4 holiday – could provide some important clues as to how much it’s actually heating back up – and not just by creating jobs but by creating better jobs.

Here are a few metrics to key in on when the latest data drops:

Will job gains stay strong and will unemployment fall?

It seems almost pedestrian to lead with, “hey, look at the total payroll growth and the unemployment rate” as a gauge on the labor market’s health. But these metrics are the headliners for a reason. They provide a nice, quick snapshot of economic conditions.

In May, the economy added an estimated 172,000 jobs while the unemployment rate held steady at 4.3% for the third month in a row.

FactSet’s consensus estimates have June’s job gains at 100,000 and the jobless rate extending its 4.3% streak by another month. However, economists’ individual estimates vary widely: Some are expecting job growth close to 200,000 while others project a tepid total of 35,000 or under.

Joe Brusuelas, RSM US’ senior economist, is in the first camp. He’s expecting 180,000 jobs added and for the unemployment rate to dip to 4.2% – likely indicating an improvement of economic health.

Three factors are impacting that outlook: One, a pickup in hiring in goods-producing and construction businesses tied to AI datacenter buildout and capital expenditures; two, sustained growth in healthcare jobs as the US population gets older; and three, a largely World Cup-driven lift in transportation and leisure and hospitality employment.

Even if there is a World Cup boost (that would drop off come July or August), Brusuelas said he believes the labor market has pivoted toward acceleration.

“Anything above 50 (thousand jobs added), I’m very happy about,” he told CNN in an interview.

Is wage growth ticking up?

Workers’ pay gains have slowed from their pandemic hiring frenzy highs and are running at an annual rate of 3.4%, roughly what was seen in the summer of 2019.

The problem now is that prices are rising at more than double the rate then, and inflation (at 4.2%) is well outpacing wage growth.

“Wage growth does not turn around quickly, but if we continue to see strong employment growth, there should be some uptick in the rate of wage growth,” Dean Baker, economist and co-founder of the Center for Economic and Policy Research.

The expectations are that pay gains shouldn’t fall further behind on their own in June. FactSet estimates show a pickup to 3.5%, while separate data released Wednesday by payroll giant ADP indicated that the median pay gain for “job-stayers” held at 4.4%, while job-changers accelerated to 6.6% from 6.5% in May.

“All told, this is a good sign of stability,” Nela Richardson, ADP’s chief economist, told reporters in a call on Wednesday.

Are more industries adding jobs?

The healthcare industry has been the labor market stalwart, powering the bulk of employment gains, and in the process, highlighting the sheer power of shifting demographics.

In recent months, other sectors have started to bounce back: In May, as in April and March, more industries were adding jobs than losing them.

“If (June) is a bad report, what one would expect is a reversion to where the pickup in hiring was almost exclusively driven by [healthcare] and flat to negative elsewhere,” Brusuelas said. “That would suggest that we just saw a temporary, three-month mirage in hiring.”

ADP’s June employment report released Wednesday showed a slowing in employment growth at US private-sector firms to 98,000 from 122,000 the month before. It also showed a return to the over-concentration in healthcare versus more broad-based hiring in May.

ADP’s Richardson said she had been “really excited by the May report, because we got contributions from almost every industry.”

It seemed as if this “low-hire, low-fire” labor market was finally becoming more dynamic, she added.

“We didn’t get that [in June], but what we got was a lot of stability,” she said. “And maybe given everything – all the crosswinds, and AI effects, and demographic effects, and global effects that could be impacting things – we should take some stability as we end the first half of the year.”

Are more people finding opportunities?

Last year’s employment growth was some of the weakest on record, and two demographic groups were the hardest hit: Black Americans and younger Americans, noted Heather Long, chief economist at Navy Federal Credit Union.

The unemployment rate of workers between 16 and 24 years old improved in May (9.4%) from last summer (hovered between 10% and 10.6%). Black workers’ unemployment dropped to 6.6% from 7.3%.

The demographic data in the jobs report is notoriously choppy and volatile; however, if those trends persist, it could be an indicator of improvement in the labor market.

“Historically those groups have been canaries in the coal mine for the labor market: They tend to be laid off first and hired last,” she said. “There are a lot of reasons for that, some of which include historic discrimination, but I think when you’re really trying to gauge how healthy is the labor market, when you see the Black unemployment rate coming down, you know that the improvement is real.”

Are more people finding jobs – and the ones they want?

The May jobs report showed that workers employed part-time for economic reasons fell by nearly 140,000. Additionally, there was a decline in the number of workers unemployed for five weeks or fewer.

The trajectory of both point to faster absorption of job seekers as more jobs are opening up, ZipRecruiter economist Nicole Bachaud noted at the time.

The one area of concern, she said: Long-term unemployment (27 weeks or more) rose by 155,000.

“Suggesting employers are drawing disproportionately from the fresher end of the talent pool,” she wrote at the time. “Workers who have been searching for months continue to face steeper headwinds and a more challenging job search than headlines suggest.”

The Bureau of Labor Statistics is set to release the jobs report for June at 8:30 a.m. ET on Thursday.

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