CNN
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The pandemic threw the US job market into chaos, but four years later, things finally seem to be back to normal.

Monthly job gains have slowed but remain stable, labor demand and supply have come more into sync, there hasn’t been a rash of layoffs and the overall economy and spending have held up just fine.

Most indicators support the idea that the labor market is no longer overheated and could easily maintain a new normal of steady, but slower growth.

Federal Reserve Chair Jerome Powell said as much Wednesday: “A broad set of indicators suggest that conditions in the labor market have returned to about where they stood on the eve of the pandemic: strong, but not overheated.”

Economists expect that Friday’s July jobs report will show a net gain of 175,000 jobs — a touch below the average for the past three months — and for the unemployment rate to hold steady at 4.1%, according to FactSet consensus estimates.

“This is a labor market that’s otherwise moderated,” Nick Bunker, director of North American economic research at Indeed, told CNN.

But with softness comes susceptibility. Powell mentioned that, too, noting that the “downside risks are real now.”

The labor market is now more vulnerable to a rapid weakening if there were to be an unexpected shock or if interest rates stay this high for much longer, noted Nancy Vanden Houten, Oxford Economics’ senior economist.

“The [Federal Reserve] needs to guard against a scenario where a rising unemployment rate triggers a reinforcing negative cycle of unemployment, income loss and additional job losses,” she wrote in a labor market research briefing issued last week.

The Fed isn’t expected to start cutting rates until September at the earliest, but Friday’s jobs report should provide some key insight into whether the labor market has enough gas in the tank to stay on cruise control.

Here are some things to watch:

Hiring activity has declined, job postings have fallen in number and unemployment insurance claims data indicates that more people are unemployed — and staying without a job for longer.

First-time applications for jobless benefits continued to march higher last week, rising to an estimated 249,000 filings, which is the highest since last August, according to Department of Labor data released Thursday. And continuing claims, which are filed by people who have received unemployment benefits for at least a week or more, increased to 1.877 million, the highest since November 2021.

And until last month, when the nation’s unemployment rate rose to 4.1%, it was back in November 2021 when the jobless rate was last above 4%.

While the increase seems concerning, economists say it’s less worrisome than it appears … at least for now.

The main reason: Layoffs aren’t mounting.

In July, the number of announced job cuts dropped 47% from June to 25,885, according to Challenger, Gray & Christmas data released Thursday. It’s the smallest monthly total seen all year and the lowest since July of last year (which itself was a yearly low).

A further escalation in the unemployment rate could undermine the economic growth that’s occurring, especially if layoffs rise, wrote Madhavi Bokil, a senior vice president at Moody’s Ratings, in a note issued this week.

For now, the unemployment rate ticking up appears more likely a reflection of people joining the labor force, Indeed’s Bunker said, adding that survey data tracking permanent job losers is one to watch closely.

The labor force participation rate and the employment to population ratio are important metrics and key reasons why Bunker and others believe the labor market remains in good shape.

The prime working age (25 to 54 years old) employment to population ratio held at 80.8% in June, remaining near the 23-year high of 80.9% hit last year, BLS data shows. The same goes for the prime-age labor force participation rate, which at 83.7% also is the highest in 23 years.

Overall labor force participation, which ticked up to 62.6%, has improved since the pandemic crash; however, its growth remains constrained by an aging workforce.

“That [employment to population ratio] is a leading indicator that tells me that things are still doing quite well,” Elise Gould, senior economist at the Economic Policy Institute, told CNN in an interview. “The unemployment rate moves because of many different factors, including people looking for work. Participation can soften if they population ages and more people are moving into retirement.”

Measurements of foreign-born and native-born workers also could provide some insight as to immigration’s continued impact on the labor market as well as whether the labor force participation rate for native-born workers continues to rise, Bunker said.

“The surge in immigration was a component of the relatively painless cooldown of the labor market,” he said, noting the increase in labor supply, “but not the only force behind it.”

There has been higher demand for part-time workers from employers, especially in restaurants where consumers have bit back against high prices; however, the number of workers who say they could only find part-time work (for economic reasons) remains in line with what was seen in 2019 and below historic levels.

The temporary help services industry was one that has long been a “canary in the coalmine” for future employment shifts: If companies are growing, they’ll often get temporary help until they can hire for a full-time position; but if times are tougher, the temp workers usually are the first to go.

However, that bird has been a bit scrambled since the pandemic, as the sector has seen a sharp decline in jobs during the past two years, but there hasn’t been a drastic fall-off in the labor market.

The “temporary help services [industry] is the ‘Boy who cried wolf,’” Bunker said. “It’s been crying wolf for two years now, and I don’t see a pack of anything coming over the hill.”

Pay growth continues to cool, as do fears of a wage-price spiral. New Employment Cost Index data released Wednesday showed that wages and benefits rose more slowly than expected during the second quarter, increasing just 0.9% (the lowest quarterly rate in three years). On an annual basis, compensation costs slowed as well, to 4.1%.

The average hourly earnings metric that’s in the jobs report is considered less comprehensive and more volatile than the quarterly ECI metric; however, economists are expecting to see a slowdown there as well: to 3.7% from 3.9%, according to FactSet.

However, if average hourly earnings growth does happen to accelerate, it might not necessarily raise red flags, Julia Pollak, chief economist at ZipRecruiter, told CNN in an interview this week.

“That could be obscured by hurricane effects,” she said, referencing Hurricane Beryl. “The hurricane may result in a lower average hours number, which could raise wage growth just because that denominator is lower. I would discount any increase in wage growth that is shown Friday, because every other source suggests that wage growth is cooling, posted wages in job postings are slowing.”

That includes the monthly employment report from payroll processor ADP, which showed wage gains for both job-stayers and job-changers rose at the slowest pace in three years.

The US job market is in a period of historic growth (it’s the fifth-longest period of employment expansion on record); however, the lion’s share of the credit during much of that time goes to only a couple of industries: health care, government and (until just recently) leisure and hospitality.

In short, the employment gains haven’t been broad-based. Instead, the overall numbers are reflective of a “rolling recession,” where sectors experience downturns and recoveries at different times.

“This is an unusual state of affairs where the aggregate numbers look pretty strong, but they’re really being boosted by the unusually strong government and health care numbers, which are masking the unusual weakness elsewhere,” Pollak said.

“I think it’s the major reason why the aggregate figures look so strong and yet people feel so bad,” she added. “Most people in this country are not working in health care or a police department and can’t easily switch into those kinds of jobs. … These averages can look quite rosy but mask the very real challenges and struggles of business owners and job seekers.”

The BLS does have a measurement of how employment changes are dispersed across industries, and it’s shown that job growth has become slightly more broad-based in recent months. The diffusion indexes (seen here at the bottom of this chart) can provide an indication of whether more industries are seeing employment gains than losses.