What to expect from the jobs report on Friday

(CNN) -- The US labor market has kept trucking right along even as other areas of the economy have slowed.

But that once high-octane ride is showing some signs of wear and tear amid the Federal Reserve's yearlong efforts to cool inflation by suppressing demand.

Job cuts are mounting, hiring activity is losing momentum, and uncertainty is simmering as to how the banking sector's recent tumult could ripple through the economy.

"I think the image, for me, that most sums up where we are in the labor market is [the chart in this tweet] by Bloomberg's chief economist [Michael McDonough], which shows that mentions of job cuts are now higher than mentions of labor shortages in earnings calls," said Julia Pollak, chief economist at online employment site ZipRecruiter. "That's a big reversal after 2021 and 2022 were very much the years of the labor shortage and everyone was talking about how they were struggling to find workers."

"We're at a tipping point now," she added.

Just how much of a shift there is could become even clearer on Friday when the Bureau of Labor Statistics drops the heavily anticipated jobs report for March.

Economists expect monthly job gains to slow, with consensus estimates landing at the 240,000 level, according to Refinitiv. That would be a notable reduction from February's 311,000 jobs gained and a sizable drop from the monster 504,000 net gain in January.

Refinitiv estimates the monthly unemployment rate holding steady at 3.6%; average workweek hours unchanged at 34.5; and average earnings ticking up only slightly (0.1 percentage points) to 0.3% for the month, which would bring the annual average hourly earnings growth down to 4.3% from 4.6%.

'Employers are pulling back'

If the labor market data released so far this week serves as a proxy, March's jobs report should show some noticeable cooling:

On Tuesday, the latest read on labor turnover showed that job openings in the United States dropped below 10 million for the first time in more than a year and half. The number of available jobs fell to 9.93 million in February, according to the BLS' Job Openings and Labor Turnover Survey.

The latest decline in openings indicates the labor market is showing some slack: The number of available jobs per job seeker is now fewer than 1.7. In January, that ratio was nearly 1.9.

Online job postings show a similar, if not more elevated retreat in recent weeks. Data from the Indeed Hiring Lab shows that as of March 24, postings - both overall and new - are down from a month prior.

Additionally, the share of postings advertising benefits such as health insurance, paid time off and retirement plans has tapered off, Nick Bunker, Indeed Hiring Lab's head of economic research, told CNN.

"That suggests that maybe there's some fading of competition for hires right now," he said.

On Wednesday, the latest private-sector jobs report from payroll processor ADP came in at 145,000 for March, landing below expectations.

"Employers are pulling back from a year of strong hiring; and pay growth, after a three-month plateau, is inching down," Nela Richardson, ADP's chief economist, said in a statement.

And on Thursday morning, Challenger Gray & Christmas reported that US employers announced 89,703 jobs cuts in March, a 15% pickup from February and more than three times what was reported a year before (when the labor market recovery was still in full swing).

Hiring plans fell to 9,044, marking the lowest March total since 2015, according to the Challenger Report.

The March job cuts bring the first three months' total to 270,416, making it the seventh-highest first-quarter job cut announcement during the past 35 years.

Nearly half of the layoffs have come from the technology sector, where many firms are scaling back considerably after over-hiring during the pandemic. Financial companies announced the second-most job cuts year-to-date with 30,635, according to the Challenger Report.

Potential red flags

The overall strength of the job market - and ongoing demand in underemployed industries like leisure and hospitality as well as health care - more than offset the losses seen in tech and finance.

There still remains uncertainty about the extent to which those and other layoffs may ripple through the broader labor market. And that uncertainty has only grown in recent weeks as a result of the turmoil in the banking industry.

"It doesn't necessarily require that other banks fail in order for an impact to be seen," Daniel Zhao, lead economist at Glassdoor, told CNN. "But if the impact is that banks pull back on lending to businesses, and that prevents businesses from continuing to expand their headcount, then we might see the impact on the labor market through those subtle ripple effects from the banking troubles that started in March."

It'll be far too soon to see any of those ripple effects in the March jobs report, Zhao said, adding that he's still anticipating monthly job gains in the 200,000 to 300,000 realm. However, Zhao noted that he'll be closely watching certain metrics within the jobs report that could show whether the US labor market is slowing from its post-pandemic highs or starting to slide into downturn territory.

Some potential red flags could include: If the headline jobs number falls between zero and 200,000, and if the unemployment rate jumps by 0.2 percentage points or more.

"I think the concern then is that starts to look more like the start of a recession, because we did already see a 0.2 percentage point increase [in the jobless rate] from January to February," he said. "So if we see another one, that does start to add up."

Additionally, a drop in the average workweek hours could indicate that supply sank enough to where businesses had to cut hours, he added.

Industries at risk

Economists, by and large, are still factoring in a recession later this year. And even though it's most likely to be "short and shallow," the recession will affect some industries more than others, according to new research from the Conference Board.

The business membership and research group this week launched the Job Loss Risk Index, which estimates what industries could suffer the largest employment losses during a recession.

According to the organization's findings, the industries with the highest risk include information services, transportation and warehousing, and construction.

Employment in these industries ballooned during the pandemic as telework and e-commerce boomed. However, that environment has shifted as people have returned to work and shifted spending to service-oriented industries. Additionally, high interest rates have made borrowing more costly and weakened industries such as housing.

The next tier of industries classified with a "high" risk include: repair, personal and other services; manufacturing; wholesale trade; and real estate. Industries with a "very low" or "low" risk include private educational services, health care, public sector employment, retail, food services, and arts and entertainment.

What this means for future rate hikes

Friday's jobs report will be the last monthly employment snapshot before the Fed's next policymaking meeting on May 2-3, since April data will be released May 5.

And while the March report will likely show a continued slowing in the labor market - notably wage gains and job growth - it probably won't dissuade the Fed from approving a third-straight quarter-point rate hike in May, Oxford Economics lead US economist Nancy Vanden Houten wrote in a note Tuesday.

"The moderation won't be enough to convince the Fed that labor market conditions are easing enough to return inflation to its 2% target," she wrote.

Oxford Economics expects quarter-point rate hikes at the Fed's May and June meetings, noting the latter projected hike is more up in the air due to banking sector stress.

The Bureau of Labor Statistics is expected to release its March jobs report on Friday at 8:30 a.m. ET.

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