While the May employment report affirmed robust job creation, inconsistencies in labor market indicators point to potential challenges ahead.

The analysts note that the jobs-workers gap – the difference between job openings and unemployed workers – has returned to its pre-pandemic level, with the normalization occurring smoothly. However, there are signs that labor demand may be softening.

"If so, the labor market stands at a potential inflection point where a further material softening in labor demand would hit actual jobs, not just open positions, and could therefore push up the unemployment rate more significantly," the analysts at Goldman Sachs said in a note.

Recent data shows a rise in jobless claims and a decline in their employment survey tracker, indicating potential stagnation or slight contraction in labor demand.

Economic activity remains a crucial driver of labor demand, and Goldman Sachs observes a notable slowdown in GDP growth from 4.1% in the second half of 2023 to an estimated 1.7% in the first half of 2024.

While the bank expects a moderate economic pickup in the second half of the year, primarily due to more favorable financial conditions, the overall slowdown is likely to persist. Factors such as softened real income growth, declining consumer sentiment, and rising election-related uncertainty could further weigh on business investment.

Despite a surprisingly hawkish Federal Open Market Committee (FOMC) dot plot, which projected only one rate cut in 2024, Goldman Sachs remains confident in its forecast of two cuts, expected in September and December.