{"id":10308,"date":"2026-05-01T15:19:11","date_gmt":"2026-05-01T15:19:11","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/?p=10308"},"modified":"2026-05-01T15:48:14","modified_gmt":"2026-05-01T15:48:14","slug":"corporate-profit-squeeze-is-a-yellow-flag-for-an-otherwise-healthy-labor-market","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/us-week-ahead\/corporate-profit-squeeze-is-a-yellow-flag-for-an-otherwise-healthy-labor-market\/","title":{"rendered":"Corporate profit squeeze is a yellow flag for an otherwise healthy labor market"},"content":{"rendered":"\n
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Next week the focus will be on the employment report. We expect nonfarm payrolls added +26K jobs<\/strong>\u2014a number which, in the current environment of low immigration and high retirements, is roughly breakeven. In this vein, we expect the unemployment rate to hold steady at 4.3%<\/strong>, supported by a modest decline in jobless claims between the reference weeks for March and April.<\/p>\n<\/div><\/div>\n<\/div>\n<\/div>\n\n\n\n

The bulk of job creation remains concentrated in structural health care hiring. Strip that out, and the picture is concerning. Over the past six months, the US economy has averaged just +15K jobs per month \u2013 and hiring excluding health care has been negative. Trade-exposed sectors\u2014including wholesale trade, transportation and warehousing, and several manufacturing industries (fabricated metals, machinery, motor vehicles and parts, food and beverage)\u2014have been shedding jobs by and large since Liberation Day. Cyclically sensitive services sectors have followed a similar pattern. The weakness in payrolls combined with the extremely low jobless claims suggests that most sectors are not backfilling positions vacated by retirees. This likely reflects the uncertainty paralysis amid mounting external shocks \u2013 firms do not tend to hire when facing rising input costs \u2013 and the oil shock is adding to the pressures.<\/p>\n\n\n\n

So long as health care hiring holds up (and we expect it will), the unemployment rate will likely move sideways. But downside risks prevail, especially as firms face higher input costs. We highlighted that a corporate profit squeeze from rising costs due to external shocks (tariffs and now higher energy prices) poses downside risk to the US labor market<\/a>. Since 2024, we have seen corporate profits weaken in trade-exposed sectors including wholesale trade, transportation and warehousing, and several manufacturing sectors (machinery, motor vehicles and parts, and food and beverage and tobacco products). Firms facing margin pressure are likely to reduce costs, and labor is often an easy target. For now, the labor market appears to be steady but if cost pressures intensify and are not fully passed on, the steady foundation could erode quickly.<\/p>\n\n\n\n

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Outside of nonfarm payrolls and unemployment, here\u2019s what else we\u2019re watching:<\/p>\n\n\n\n