The upcoming release of the June nonfarm payrolls report has gained significant attention as concerns mount over the potential slowdown in the labor market. Economists predict that the report, scheduled for release on Friday at 8:30 a.m. ET, will show a growth of 200,000 jobs, a decline from the 272,000 jobs reported in May.

Although there are no concrete signs of an impending recession, the trend in unemployment has raised some eyebrows. Thus far in 2024, payroll gains have reached 1.24 million, which falls approximately 50,000 jobs per month below the same period a year ago.

Experts have noted that while the pace of job gains remains solid in historical terms, there are underlying indications that conditions may be softening, possibly hinting at broader economic weakness in the future. Nick Bunker, the head of economic research at the Indeed Hiring Lab, highlighted the rising unemployment rate as a cause for concern. In May, the jobless level increased to 4%, marking the first time it had reached that threshold since January 2022 and up from 3.7% a year ago. Forecasts suggest that the rate will hold steady at 4%.

The deviation between the current unemployment rate and its levels over the past year has drawn attention from economists. The May rate stood at 0.5 percentage points above its 12-month low of 3.5% in July 2023, potentially triggering a recession indicator known as the Sahm Rule. This rule has consistently revealed that when the three-month average unemployment rate surpasses its 12-month low by half a percentage point, the economy is in a recession.

While there are limited data signs suggesting a recession, the upward trend in unemployment warrants attention. Bunker emphasized that although the slow rise in the unemployment rate does not necessarily imply a high risk of triggering the Sahm Rule or any other unemployment rate-based measure of entering a recession, the probability of such an event has increased.

The first half of 2024 has seen a slowdown in the economy. The gross domestic product (GDP) growth in the first quarter rose at a 1.4% annualized pace, while the Atlanta Federal Reserve predicts a growth rate of just 1.5% for the second quarter. Lingering inflation concerns may cause the Federal Reserve to maintain current interest rates for a longer period before considering a decrease.

Aside from the headline payroll and unemployment figures, other significant metrics will be closely monitored. The divergence between the nonfarm payrolls count, derived from the Bureau of Labor Statistics' survey, and the household count, used to calculate the unemployment rate, has sparked attention. The establishment survey indicates an increase of approximately 2.8 million jobs over the past 12 months, while the household count only reflects a rise of 376,000 jobs. Although economists generally consider the establishment survey more reliable due to its larger sample size, the discrepancy has raised eyebrows.

Furthermore, hours worked and average hourly earnings will be analyzed as indicators of inflation. The forecast predicts a monthly paycheck increase of 0.3% and a 12-month rise of 3.9%. If these projections hold true, it will be the first time since June 2021 that the annual increase falls below 4%.

As the June nonfarm payrolls report approaches, economists and market participants anxiously await its release. With signs of a potential labor market slowdown, the findings will provide crucial insights into the state of the economy and the future trajectory of job growth.