Economists expect nearly 3 million jobs were created in June, as companies rehired workers they let go when the economy shut down.
The monthly employment report, to be released Thursday, is surrounded by more uncertainty than normal, after economists forecast the loss of 8 million jobs in May and the economy gained 2.5 million payrolls instead.
"At the moment, we still expect a lot of rehiring," said Michael Gapen, chief economist at Barclays. "We know there was a lot of overfiring where firms laid everybody off with the expectation they would hire some people back."
Gapen expects 2 million jobs were added in June. However, the range of forecasts from economists is as low as 1 million and higher than 7 million, reflecting the same unknowns that affected the forecast in May.
The strength or weakness of the employment report will also be important to the debate in Congress later this month about expanded benefits for unemployed workers. Those special benefits expire at the end of the month, and they have been providing the unemployed with an additional $600 a week and covering workers not normally included in state benefits.
Strategists expect Congress will ultimately agree to extend those benefits, though the $600 is likely to be pared down.
For June, the Dow Jones consensus forecast is that 2.9 million payrolls were added, and the unemployment rate is expected to fall to 12.4%, from 13.3% in May. The jobs report is released at 8:30 a.m. ET, the same time as weekly unemployment claims data.
The weekly claims data may be more helpful to the employment picture since it will show how many Americans are still collecting unemployment benefits. Last week, there were still nearly 20 million collecting state unemployment benefits, and millions more collecting federal benefits.
Another 1.38 million workers are expected to have filed initial claims for state unemployment benefits last week, down from 1.48 million the week earlier.
"It has been somewhat perplexing that continuing jobless claims have not fallen further despite rising activity that suggests substantial rehiring. We suspect that continuing claims are lagging rehiring trends, partly due to part-time workers continuing to receive unemployment benefits through the CARES act," wrote Citigroup economists. "Continuing claims thus might become a more reliable gauge of changing labor market dynamics later into the fall, when the path of monthly employment figures will likely be more uncertain after the initial wave of rehirings."
The Citigroup economists expect to see 5.5 million payrolls were added in June, and a drop in the unemployment rate to 11%.
ADP Wednesday reported private payrolls grew by 2.4 million for the month of June, and it also made a sharp revision higher in May's jobs, reflecting the difficulty in tracking the jobs data now For May, ADP revised job growth to 3.1 million, from an initial loss of 2.76 million jobs.
Economists emphasize the June jobs report will be backward looking, as it reflects data through mid-June and not the latter part of the month when the resurgence of the virus led to some shutdowns of activity and delayed reopenings in several states.
"July 31 is the cliff, and the clock is ticking," said Diane Swonk, chief economist at Grant Thornton. She said the risk of another hit to the economy from the virus spreading makes extending the payroll benefits even more important.
If the virus resurgence continues to grow and more and more of the economy shuts down, it's possible that the jobs data could show losses again in July, she said.
"I worry the longer this goes on, the more you'll see white collar layoffs," she said. State and local governments are already paring back workers, and companies that have rehired may have to let go workers again.
"A dozen states are shutting things back down, or partially doing that. Then you affect businesses in those states," said Gapen. "Maybe they're even laying people off, and it's possible you get a negative [July jobs] number, which would be really bad for sentiment and really bad for the outlook. Hopefully, that's not happening."