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Investing.com -- The U.S. economy created more jobs than expected last month, data showed Friday, but Macquarie economists warn that leading indicators are starting to show cracks emerging in the labor market.
"After being mixed in recent months, most of our leading indicators from this report have become more concerning,” the economists said in a note Friday, highlighting that while headline payrolls rose by 139,000 in May, the report was weighed down by sizeable downward revisions to previous months and a sharp contraction in household employment.
Despite the solid headline, the unemployment rate held steady as the participation rate declined, masking underlying weakness. The household survey, meanwhile, showed employment contracted by 696,000, unwinding gains from earlier in the spring, while the participation rate reversed recent improvements.
Several leading indicators turned negative: temporary help payrolls contracted by 20,000, manufacturing and construction payrolls jointly fell by 4,000, and the three-month diffusion index—a measure of the breadth of payroll gains—declined for the fourth consecutive month. Macquarie also noted a continued rise in permanent job losers and an uptick in unemployed new entrants and re-entrants, while job leavers as a share of the unemployed fell for the fourth straight month.
Wage growth offered a mixed signal, with average hourly earnings rising 0.4% month-on-month and 3.9% year-on-year, suggesting some stabilization after signs of deceleration earlier in the year. Aggregate weekly private payrolls grew robustly at 0.5% month-on-month, which may support consumption in the near term.
Looking ahead, Macquarie expects the labor market to struggle but not deteriorate sharply, citing low labor force growth—driven by curtailed immigration and elevated retirements—as a key source of resilience.
“Low labor force growth should moderate the impact flowing through onto unemployment from hiring softness,” the economists said