The labor market’s next chapter is taking shape. Here’s what to watch for in Friday’s jobs report

Summary

• Economists expect Friday’s jobs report to show 105,000 jobs added in May, marking three straight months of growth above 100,000.
• The labor market is undergoing complex changes with shifts toward part-time work and concentration in healthcare and low-paying sectors.
• Key metrics to watch include wage growth versus inflation, the breadth of hiring across industries and AI’s evolving workplace impact.

AI-generated summary was reviewed by a CNN editor.

The labor market may be rousing from its slumber.

Economists are expecting that Friday’s jobs report will show that the US economy added 105,000 jobs in May and the unemployment rate held steady at 4.3%.

If Friday’s monthly total comes in as expected – and the prior months’ figures aren’t revised starkly lower – it would mark three consecutive months of 100,000-plus jobs added.

That kind of hat trick hasn’t been accomplished since the first three months of 2024.

While one month does not make a trend, three sure seem like a start: Job gains upward of 100,000 could indicate that the labor market is stabilizing.

However, it’s also not that simple: The labor market is in the throes of a complex evolution, with many different moving parts.

At play are structural changes, a generational technology movement, and a slew of external variables, to name a few.

“It’s just in this place where we’re really resetting a new normal, what normal is going to look like, and what a ‘good jobs report’ will look like moving forward, which is different than it was pre-pandemic and from historical trends,” said Nicole Bachaud, a labor economist at employment site ZipRecruiter.

It’s also not just reflected in slower job gains, said Nela Richardson, chief economist at ADP.

“The jobs are more likely to be part-time, they’re more likely to be in healthcare, they are more likely to be low-paying,” Richardson said.

Here are a few other dynamics to keep in mind and keep an eye out for in Friday’s report:

Healthcare and social assistance – a sector buoyed by an aging population – has gone from driving job gains to propping up the entire labor market.

The sector, one of the nation’s largest, accounts for 15% of overall employment.

“My concern for the last two years is how one-note the labor market was,” Richardson said. “Basically, all the job gains came from healthcare. Nothing in manufacturing. Construction ebbs and flows with cyclical interest rates. And no sense of broad-based hiring.”

That appears to be changing, Richardson said.

ADP’s recent monthly employment reports, including one for May released Wednesday, showed that job gains are picking up across a wider array of industries in the private sector.

When Friday’s report is released, one metric to watch will be the Diffusion Index, which provides a measurement of job growth across major industries. A number greater than 50 indicates that more industries are adding jobs than shedding them.

Wage gains have been slowing from their post-pandemic highs — but for the past three years, they were still outpacing inflation.

That changed in April, when the oil supply crunch from the US-Israeli war with Iran (and ensuing price shock) sent inflation to 3.8%. Average hourly earnings that month grew at a rate of 3.6%.

“An uptick in wage growth would be good news for workers struggling with higher prices, but it would also push the [Federal Reserve] in the direction of rate hikes,” Dean Baker, senior economist at the Center for Economic and Policy Research, wrote in a note Wednesday.

What is the impact of high gas prices, tech layoffs and Spirit’s bankruptcy?

Businesses appear to be treating the spike in fuel prices as a temporary surge versus a sustained change, ZipRecruiter’s Bachaud said.

As such, there’s not expected to be a broad or discernible pullback in hiring or a rise in layoffs, she said, adding that industries to watch will include transportation, retail and construction.

Employment in the transportation sector is expected to take a hit in May as a result of Spirit Airlines shutting down its operations on May 2, putting 17,000 employees and contractors out of a job.

Layoff announcements picked up in May, according to a new report released Thursday morning by Challenger, Gray & Christmas. The outplacement and coaching firm tracked 97,006 job cuts announced at US-based firms, up 16% from April and 3% from May of last year.

The lion’s share of the cuts was at technology firms, and artificial intelligence once again led the reasons for the planned reductions.

While mass layoffs, especially those attributed to AI, make the headlines, economists aren’t sounding the alarm bells. They note that claims for unemployment benefits haven’t accelerated dramatically and remain near historic lows.

Last week, there were an estimated 225,000 first-time claims for unemployment insurance, an increase of 13,000 from the week before. Weekly claims data can be volatile, particularly around holiday weeks, so economists also track the four-week moving average, which ticked up to 214,750 claims. (For perspective, that average was 228,500 in the March 2020 week before the initial Covid-19 shutdown.)

AI adoption in the workplace remains “very early days,” Bachaud said.

“We’ve yet to see any widespread job displacement or really widespread growth,” she told CNN.

Rather, AI’s fingerprints are showing up in shifting job skills and the blurring of lines between different roles, she said.

The excitement around AI is moving faster than the reality of everyday businesses — and also companies’ abilities to keep up, Bachaud said. Job offers for AI-specific roles, for example, have been rescinded more for any other job, she said.

“(Businesses) feel like they’re already behind, and there’s so much pressure to move quickly, but the hiring is still much slower,” she said.

It can also explain some of the dissonance seen in the recent labor turnover data where job openings spiked in April while hiring remained stunted.

“There’s a bit of a mismatch and skill level between what employers want to hire for and what job seekers are offering,” Bachaud said.

That mismatch extends beyond AI, ADP’s Richardson said, noting shortages in specialty trades where retirements far outpace the inflow of new workers.

“The most powerful trend that you’re seeing in the current labor market is demographics; it’s swamping everything,” Richardson said. “And it’s not sexy and it’s not making headlines in the same way [as AI].”

For much of the past year, hiring was stifled by high uncertainty about the effects of policy shifts, tariffs, interest rates and geopolitical concerns.

What resulted was a stilted pattern of hiring, Richardson said.

“You’ll see strength, and then you’ll see pullback tied to a headline,” she said. “And that part will last maybe a season, maybe a couple months, and then you’ll see the hiring restart.”

Uncertainty continues to have an effect on the labor market, but it’s not outpacing businesses’ desires to hire, said Eugenio Aleman, chief economist at Raymond James.

“One reason is because there’s less uncertainty about tariffs; a second reason is that firms have been able to learn from what happened last year and now they are starting to move ahead with making employment decisions – especially because the economy continues to grow,” he said.