‘We're at a tipping point:' What to expect from the jobs report

Minneapolis CNN

While other parts of the US economy have slowed, the US labor market continues to grow.

The Federal Reserve has been trying to suppress demand in order to reduce inflation for the past year.

The economy is in turmoil, with job cuts increasing, hiring slowing down, and a growing uncertainty about the impact of the recent banking sector turbulence on the rest of the economy.

Julia Pollak is chief economist of online employment site ZipRecruiter. She said that the tweet by Bloomberg's Chief Economist, showing that the mentions about job cuts in earnings calls are now more than the mentions about labor shortages, best sums up the current state of the labor market. This is a major reversal from 2021 and 2022, when everyone was complaining about the labor shortage.

She added, "We're now at a critical point."

At 8:30 a.m., it will be clearer how big the shift is. The Bureau of Labor Statistics will release its highly anticipated March jobs report at 8:30 a.m. ET on Friday.

According to Refinitiv, economists are expecting monthly job gains will slow down. The consensus estimate is 239,000. This would be a significant drop from the 311,000 new jobs added in February and from the 504,000 net gains made in January.

Refinitiv predicts that the unemployment rate will remain at 3.6% for the entire month; the average number of hours worked per week will remain at 34.5 and the average monthly earnings are expected to increase only marginally (0.1 percentage points), to 0.3%, bringing the average annual hourly earnings down from 4.6% to 4.3%.

Employers are pulling back

If the data on the labor market released this week is any indication, then March's employment report should reveal a noticeable cooling.

The latest reading on labor turnover revealed that the number of job openings dropped below 10,000,000 in the United States for the first time since more than a half-year. According to the BLS Job Openings & Labor Turnover Survey, the number of jobs available in February fell to 9,93 million.

The recent decline in job openings shows that the labor market has some laxity: The number available jobs per job-seeker is now less than 1.70. In January, this ratio was almost 1.9.

In recent weeks, online job postings have shown a similar retreat, if it is not even more pronounced. According to data from Indeed Hiring Lab, as of March 24th, both new and overall postings are down compared to a month ago.

CNN's Nick Bunker, head of economics at Indeed Hiring Lab, said that the number of job postings that advertise benefits like health insurance, paid leave and retirement plans is also declining.

He said: 'That could suggest that there is a fading in the competition for hirings at this time.

The latest private sector jobs report released by ADP on Wednesday showed that the number of jobs in March was 145,000, which is below expectations.

In a press release, Nela Richardson said that employers are pulling back after a year-long period of high hiring. Pay growth is also slowing down following a three month plateau.

Challenger Gray & Christmas announced on Thursday that US employers cut 89,703 positions in March. This is a 15% increase from February, and three times the number reported a year ago (when labor market recovery had just begun).

According to the Challenger Report, the number of hiring plans has fallen to 9,044, the lowest total for March since 2015.

The total number of job cuts announced in the first quarter for the year is now 270 416. This is the seventh highest first-quarter announcement since the last 35 years.

The technology sector has seen a large number of layoffs, as many companies are reducing their workforce after hiring too much during the pandemic. According to the Challenger Report, financial companies have announced 30,635 job cuts so far this year.

The latest weekly data on jobless claims showed, also on Thursday, that continuing claims -- which are made by those who have been receiving unemployment benefits for longer than a week -- continued to climb, reaching 1.823 millions for the week ending March 25, the highest level recorded since December 2021. According to Refinitiv, economists expected 1.699 millions.

Weekly claims were 228,000. This was down from the revised upward total of the previous week, but still above the economists' expectation of 200,000. The Labor Department began making significant revisions in recent years data with the Thursday report to account for dynamics of pandemic-era.

Red flags that could be raised

The strength of the overall job market and the continued demand for underemployed sectors like hospitality and leisure, as well as healthcare, more than offsets the declines in tech and finance.

Uncertainty still exists about the impact of these and other layoffs on the labor market. This uncertainty has grown over the past few weeks due to the turmoil in banking.

Daniel Zhao, Glassdoor's lead economist, told CNN that it is not necessary for other banks to fail before an impact can be felt. If banks are less willing to lend to businesses and this prevents them from expanding their workforce, we may see ripple effects on the labor markets.

Zhao stated that it's too early to expect any ripple effects from the March jobs report. He still anticipates monthly job gains between 200,000 and 300,000. Zhao said that he will be watching closely certain metrics in the jobs report to see if the US labor market has slowed from its post pandemic highs, or is starting to slide towards a downturn.

Red flags include: If headline employment falls between zero to 200,000 and if unemployment rates jump by 0.2 or more percentage points.

He said: 'I'm concerned that it looks more like a start of a depression, since we've already seen a 0.2 percent increase [in unemployment] between January and February.' If we have another, it will start to add.

He added that a decrease in the number of hours worked per week could also indicate a decline in supply to such an extent that businesses were forced to reduce hours.

Industries at Risk

Most economists still expect a recession to occur later this year. According to new research by the Conference Board, even though the recession is most likely to be "short and superficial," it will still affect certain industries more than others.

This week, the business membership and research organization launched the Job Loss Risk Index. It estimates which industries may suffer the greatest employment losses in a recession.

The organization found that the most at-risk industries are information services, transportation, warehousing and construction.

Telework and E-commerce boomed as employment in these industries soared during the pandemic. This has changed as people are now back to work, and their spending is shifting to industries that provide services. High interest rates have also made borrowing expensive and hurt industries like housing.

Next, industries with a high risk are: manufacturing, wholesale trade, repair and personal services. Industries classified as'very low or low' risk include: private educational services; health care; public sector employment; retail, food service, arts and entertainment.

What it means for future rates

The Fed will release April data on May 5, so Friday's report will be the final monthly snapshot of employment before its next policymaking meeting, which will take place May 2-3.

The Fed will probably approve a third quarter-point increase in rates in May even though the March report is likely to show continued slowing of the labor market, notably in wage growth and job creation. This was the conclusion reached by Oxford Economics' lead US economist Nancy VandenHouten in a Tuesday note.

She wrote that 'the moderation will not be enough to convince Fed that the labor market conditions have eased enough to return to its 2% inflation target'.

Oxford Economics predicts a quarter-point increase in rates at the Fed's meetings of May and June. However, the second projection is less certain due to the banking sector stress.