This Friday, the Bureau of Labor Statistics (BLS) will release the June jobs report. Midway through 2023, the economic outlook has shifted wildly in recent months from pessimism to optimism and back several times. Almost exactly one year ago, several business leaders and economists began to warn of – and actively prepare for – a major recession. While worst-case fears have not materialized, due in large part to an unexpectedly resilient labor market and consumer spending, the underlying cause of those year-ago fears – high inflation – has yet to be fully resolved.
Here are three trends we'll be watching for in the June jobs report:
- Slower job growth seems all but inevitable. Employers added 339,000 jobs in May, the second strongest month for job gains thus far in 2023 and the second consecutive month of accelerating job gains after downward revisions reduced initially reported payroll growth earlier in the year. A slowdown in June feels inevitable, though job growth is likely to remain above the 200,000 monthly benchmark that has historically been consistent with an expanding economy.
- Unemployment rate likely to increase for a second consecutive month. The unemployment rate increased by 0.3 percentage points in May to 3.7 percent, the largest monthly increase and the first year-over-year increase since 2010 (excluding the early months of the Covid-19 pandemic). It likely ticked higher in June to 3.9 percent with the entry of recent college graduates to the jobs market, and slowing reemployment among workers who were recently laid off. If this occurs, the unemployment rate will have increased 0.5 percentage points in two months – an important benchmark for many economists.
- Wage growth to slow to 4.2 percent. Average hourly earnings grew 4.3 percent year-over-year in May, a slight deceleration from 4.4 percent in April. It held steady at 5.0 percent for frontline (production and nonsupervisory) workers. Both remain exceptionally high by historic standards. In key sectors the slowdown in earnings growth has been much sharper: A year ago, frontline leisure and hospitality workers were seeing wages grow by 12.3 percent annually; now they’re growing at 5 percent. We expect another 0.1 percentage point deceleration in the annual pace of wage growth, a welcome trend but hardly sufficient to erase fears of wages fueling persistent inflation.
To quote author Zora Neale Hurston: “There are years that ask questions and years that answer.” For economists and business decision makers, the past 12 months have asked far more than they have answered. The post-pandemic economic boom has reached middle age: On the surface things look ok, but there are weird noises coming from funny places that we would be remiss to ignore. With no obvious future crisis on the immediate horizon, and the bulk of interest rate hikes likely in the rearview mirror, perhaps the more salient risk to the economy is less from catastrophic shock than from the slow creep of senescence.
The X Files (for Unemployment)
Overall unemployment remains low, but it is gradually creeping higher in pockets of the workforce. The unemployed population skews younger than the overall workforce since young people tend to be unemployed more frequently as they enter the workforce and change jobs more frequently. Millennial and Gen Z each now account for roughly one-third of the unemployed.
Growth in the unemployed population, however, has recently been driven by older workers. Since layoffs began to accelerate in late 2022, effectively all of the increase in the unemployed population over the past six months has been among Generation X – workers born between 1964 and 1980, who are currently aged 44 to 59. This is particularly true among the long-term unemployed (those continuously unemployed for more than 12 weeks).
Historically, those years are a pivotal time for pre-retirement wealth accumulation but research on the long-term effects of layoffs suggest workers who lose their jobs in the concluding chapters of their careers tend to have a harder time finding new jobs, and when they do, they are often lower paid or lower rank.
The natural question is: Is this the result of older workers having the luxury to be picky and find a good job match (for instance, accumulated savings or access to health insurance via spouses), or is this the result of them having a more difficult time finding any match? With standard unemployment insurance benefits expiring soon for workers impacted by the earliest waves of layoffs late last year, it’s possible many of the longer-term unemployed are now facing a renewed urgency to find reemployment.
Seeds of Discontent
The tech industry has borne the brunt of labor market turmoil over the past few months, and a handful of tech industry executives were particularly prominent in issuing dire economic predictions for 2023. Sentiment among workforce employees is increasingly reflecting these new realities.
Since mid-2022, the share of software engineers who approve of their CEOs has tanked at the largest tech companies — the so-called FAAMG/MAMAA group composed of Meta (previously Facebook), Apple, Amazon, Microsoft, Netflix and Alphabet (previously Google). As of June 2023, only 50 percent of software engineers among this group of tech giants approve of their CEOs, compared to 71 percent a year ago. CEO approval among software engineers has declined at other large companies as well, though by a far smaller magnitude.
Amid broader economic uncertainty, technical talent is increasingly prioritizing stability. But sooner or later an appetite for risk will return – among both workers and firms. If these workers remain similarly discontent when the pendulum of the labor market eventually begins to shift, we could be planting the seeds of a new round of economy-wide quits.
Methodology
The second chart uses Glassdoor company review data. It shows the share of company reviews posted in a given month by software engineers at FAAMG/MAMAA companies versus other large companies (1,000 or more employees) who “Approve” of their company’s CEO.