All eyes will be on the June jobs report when it is released Friday morning as investors look for clues about the labor market's health in the face of higher interest rates and sticky inflation.
The Labor Department's high-stakes June payroll report, due at 8:30 a.m. ET, is projected to show that hiring increased by 225,000 last month and that the unemployment rate inched lower to 3.6%, according to a median estimate by Refinitiv economists.
That would mark a drop from the 339,000 in May and the 290,000 monthly average recorded over the previous six months. However, it is slightly above the average pre-pandemic monthly increase.
"The economic expansion will just not die despite the twin inflation and interest rate shocks over the past two years," said Joe Brusuelas, RSM chief economist. "Growth and unemployment rates at these levels are not only a sign of an extraordinary recovery from the previous recession, but also are a sign that this is not your parents’ labor market."
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The Federal Reserve is closely watching the report for evidence that the labor market is finally softening after months of surprisingly healthy job gains as policymakers try to wrestle inflation under control. Although the consumer price index has cooled from a peak of 9.1% in June 2022, it remains about three times higher than the pre-pandemic average despite 10 consecutive interest-rate hikes.
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Hotter-than-expected job and wage data on Friday could be a worrisome sign for the U.S. central bank.
"The Fed is expected to raise the fed funds target a quarter percent at this month’s decision, and could make another quarter percentage point hike before year-end if data keep surprising to the upside," said Bill Adams, chief economist for the Dallas-based Comerica Bank.
The labor market has remained historically tight over the past year, defying economists' expectations for a slowdown.
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A separate report released Thursday showed that job openings dipped to 9.8 million at the end of May. While that marks a decline from the previous month, it remains abnormally high. Before the COVID-19 pandemic began in early 2020, the highest on record was 7.6 million. There are still roughly 1.6 jobs per unemployed American.
The report also pointed to an uptick in resignations, indicating that employees are confident they can quit their job and find a new one.
The data, combined with another report that showed hiring by private companies rose at the fastest pace in more than a year in June, painted a rosy picture of the labor market ahead of the June payroll report's release.
Stocks fell on the slew of better-than-expected data that reignited investor fears over additional Fed tightening this year.
The probability that the Fed delivers another rate hike this month rose to more than 92% on Thursday, according to the CME Group's FedWatch tool, which tracks trading. That compares to just 7.6% of traders who expect the Fed to hold rates steady at the current range of 5% to 5.25%.
