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June jobs report: Will it put an end to recession fears?

"These next few labor reports will be quite determinant for what the Fed does in September. If they weaken or stay soft, obviously the Fed's not going to hike into that," says one U.S. economist.

The best of times may be over for now for job seekers, even though June's critical employment report should show a substantial spring back in hiring, and the labor market remains fairly strong.

Friday's employment report is expected to show a rebound to 175,000 nonfarm payrolls, from May's stunningly weak 38,000, according to Thomson Reuters. The June report is expected to include a reversal of the negative impact of the Verizon strike, which bit into May's number and should add about 35,000 workers to the June report.

The jobs data is especially key since the shock slowdown in May hiring was one reason the Fed cited for leaving interest rates unchanged at its meeting last month. Whether the June report confirms that slowing trend or shows it to be an anomaly will be one of the more important messages for markets for weeks to come.

Of concern to some economists, however, is that without the Verizon factor, June jobs growth still is expected to narrow from a longer-term trend of 200,000-plus to just 140,000 jobs. That's above the three-month average of 116,000 but well below levels of monthly job growth of the last several years. The unemployment rate is expected to rise slightly to 4.8 percent from 4.7 percent in May, and average hourly earnings are expected to rise by 0.2 percent.

"It does appear to be a noticeable downshift in job growth. Historically, when unemployment gets near 5 percent, job growth slows," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. LaVorgna expects 155,000 nonfarm payrolls when the employment report is released at 8:30 a.m. EDT Friday.

"There is a change in the labor market. Companies aren't that worried. They're not really firing anybody, as seen with the jobless claims. I think it's a combination of reluctant to add new employees but at the same time having a difficult time finding new employees. This is typical of late stage in the cycle." -Peter Boockvar, chief market analyst, The Lindsey Group

Barclays economists expect 175,000 payrolls, and the June number is going to be important in confirming that the May jobs report was just a one-time event, according to Rob Martin, senior U.S. economist at Barclays.

"These next few labor reports will be quite determinant for what the Fed does in September. If they weaken or stay soft, obviously the Fed's not going to hike into that," said Martin. The futures market has low expectations for a Fed rate hike this year, but a surprise improvement in jobs data could change that.

"You're really looking at a number that's 140,000 to 145,000. That's not enough of a boost to relieve our concerns about the possibility of a recession in the next 12 months, but it's at least moving in the right direction," said Martin, who added that the May report pushed expectations to 30 percent for a recession in the next 12 months, but he forecasts an improvement in hiring to the point where the economy could be adding 200,000 jobs a month later in the summer.

Economists say if a lower pace of job growth continues, there could be two important factors at work behind the trend. One is that the economy is getting close to full employment. There are just not enough candidates with the right skills to fill available positions in some industries. The other, darker concern is that employers are either reluctant to hire due to the slow growing economy or fears that it will get even worse.

"Even though (May's report) was an outlier, the trend is going to be established that we have a slowing pace of job gains. It's a clear slowing," said Peter Boockvar, chief market analyst with economic advisory firm The Lindsey Group. "There is a change in the labor market. Companies aren't that worried. They're not really firing anybody, as seen with the jobless claims. I think it's a combination of reluctant to add new employees but at the same time having a difficult time finding new employees. This is typical of late stage in the cycle."

Weekly jobless claims on Thursday fell by 16,000 to 254,000, with the four-week average reaching a nine-week low of 265,000.

Goldman Sachs is more bullish than most

Goldman Sachs economists are more optimistic than most about Friday's report, and they blame the weather for a soft patch in hiring. They expect a bounce back to 210,000 nonfarm payrolls, and noted payroll growth averaged just 98,000 in April and May, the slowest two-month pace since May, 2012.

The Goldman economists noted that during April and May, industries most affected by weather barely hired. Construction, leisure and hospitality, and retail added just 4,000 jobs compared with 113,000 in October through March.

ISM data for June showed good hiring in both manufacturing and services, signaling the weak trend may be reversing. "In hindsight, it appears that unseasonably warm weather boosted payroll growth in these industries above underlying trends during the winter months. These effects then unwound, with employment growth weaker than the underlying trend in April and May … We think the payback from strong employment growth in the winter is now roughly complete in these sectors, and therefore that job growth likely recovered in June," the Goldman economists wrote.

Tom Gimbel, founder & CEO of LaSalle Network, a staffing and recruiting firm, said his business is good but hiring has definitely slowed. "I was more bullish a year ago," he said.

Gimbel said he believes there's yet another factor at work when it comes to hiring, and that's new rules for employers. That includes higher minimum wages and the Affordable Care Act. "It takes a couple of years for the negative business implications to show up," he said.

Martin said the number is also more important than usual because the extent to which it rebounds could send an important message about the state of the U.S. economy as it stood before the U.K.'s Brexit referendum last month. When the U.K. voted to exit the euozone, it sent a shudder through markets and signaled months of political uncertainty that is expected to affect not only business decisions but global economic growth.

"I think you're seeing with some of the Silicon Valley companies, they're not doing terrible, but I think people are looking at their expenses." -Tom Gimbel, founder & CEO, LaSalle Network

The Fed also said that another reason it held off in June was the potential reaction to the then-pending U.K. referendum, which came a week after the Fed met.

"If the U.S. was weak before the vote, the vote has a chance to accelerate that turn," Martin said. He also said if the U.S. was strong, it would better withstand the negative impact on global growth.

Martin said he does not believe the pace of hiring will necessarily slow from the 200,000 level once it resumes that pace, as many economists expect in the late stages of the employment cycle.

"The average rate of monthly job gains over the last three or four years is about 200,000 a month. We consider that the expansion average," he said, adding it should return to that level and stay there. "We don't buy that once the economy comes close to full employment that job growth has to slow down."

Gimbel said even with the broader slowing, he does see a good job market with still strong demand for certain types of jobs. There is more demand in some pockets of health care than others, and in technology, he sees applications developers in high demand.

"I think you're seeing with some of the Silicon Valley companies, they're not doing terrible, but I think people are looking at their expenses," he said.

But on the other hand, he sees companies still adding to middle management, an area that is hit early on when the economy goes bad.

"Today the job market is healthy and good," he said, adding there are caveats. "As a job seeker, I'd want to have stability on my resume right now, and as an employer I'd realize you want to do everything you can to retain your best people."