America’s employers added a stunning 528,000 jobs last month despite raging inflation and anxiety about a possible recession, restoring all of the positions lost in the coronavirus recession. Unemployment fell to 3.5%, the lowest level since the pandemic struck in early 2020.
There were 130,000 more jobs created in July than there were in June, and the most since February.
The red-hot jobs numbers from the Labor Department on Friday arrive amid a growing consensus that the economy is losing momentum. The U.S. economy shrank in the first two quarters of 2022 — an informal definition of recession. But most economists believe the strong jobs market has kept the economy from slipping into a downturn.
Friday’s surprisingly strong report will undoubtedly intensify the debate over whether America is in a recession or not.
“Recession – what recession?’’ wrote Brian Coulton, chief economist at Fitch Ratings, after the numbers came out. “The U.S. economy is creating new jobs at an annual rate of 6 million – that’s three times faster than what we normally see historically in a good year. ‘’
Economists had expected only 250,000 new jobs in July.
There are, of course, political implications in the jobs numbers Friday: Americans have grown increasingly anxious about rising prices and the risk of recession. It most certainly will be at the forefront of the minds of voters during November’s midterm elections as President Joe Biden’s Democrats seek to maintain control of Congress.
Biden took credit for the resilient labor market Friday, saying “it’s the result of my economic plan.”
The president has boosted job growth through his $1.9 coronavirus relief package and $1 billion bipartisan infrastructure law last year. Republican lawmakers and some leading economists, however, point to that government spending as the reason for current inflation levels which haven’t been seen in 40 years.
And for millions of Americans it is the fading power of the paycheck that remains front and center.
Hourly earnings posted a healthy 0.5% gain last month and are up 5.2% over the past year. That is not enough to keep up with inflation which means many Americans, especially the poorest, are having to scrimp in the face of high prices for groceries, gasoline and even school supplies.
“There’s more work to do, but today’s jobs report shows we are making significant progress for working families,” Biden said Friday.
The Labor Department also revised May and June hiring, saying an extra 28,000 jobs were created in those months. Job growth was especially strong last month in the healthcare industry and at hotels and restaurants.
The jobless rate fell as the number of Americans saying they had jobs rose by 179,000 and the number saying they were unemployed dropped by 242,000. But 61,000 Americans dropped out of the labor force in July, trimming the share of those working or looking for work to 62.1% last month from 62.2% in June.
While a strong job market is a good thing, it also makes it more likely that the Federal Reserve will continue raising interest rates to cool the economy.
“The strength of the labor market in the face of … rate tightening from the Fed already this year clearly shows that the Fed has more work to do,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “Overall, today’s report should put the notion of a near-term recession on the back-burner for now.″
On Wall Street, the S&P 500 was 0.1% lower after nearly erasing a sell-off that began right when the Labor Department released its report. Investors appear to be weighing the positives of a strong job market against the possibility that the Fed will continue to raise rates aggressively to cool the economy and inflation.
The attempt to interpret vastly divergent economic data is being made both on Wall Street and on Main Street.
New Yorker Karen Smalls, 46, started looking for work three weeks ago as support staff to social workers.
“I didn’t realize how good the job market is right now,’’ she said shortly after finishing her fifth interview this week. “You look at the news and see all these bad reports … but the job market is amazing right now.’’ A single mother, she is weighing several offers, looking for one that is close to her home in Manhattan and pays enough to let her take care of her two children.
That is a far cry from the situation two years ago when the pandemic brought economic life to a near standstill as companies shut down and millions of people stayed home. In March and April 2020, American employers slashed a staggering 22 million jobs and the economy plunged into a deep, two-month recession.
But massive government aid — and the Fed’s decision to slash interest rates and pour money into financial markets — fueled a surprisingly quick recovery. Caught off guard by the strength of the rebound, factories, shops, ports and freight yards were overwhelmed with orders and scrambled to bring back the workers they furloughed when COVID-19 hit.
The result has been shortages of workers and supplies, delayed shipments — and rising prices. In the United States, inflation has been rising steadily for more than a year. In June, consumer prices jumped 9.1% from a year earlier — the biggest increase since 1981.
The Fed underestimated inflation’s resurgence, thinking prices were rising because of temporary supply chain bottlenecks. It has since acknowledged that the current spate of inflation is not, as it was once referred to, “ transitory.”
Now the central bank is responding aggressively. It has raised its benchmark short-term interest rate four times this year, and more rate hikes are ahead.
In a report filled with mostly good news, the Labor Department did note that 3.9 million people were working part-time for economic reasons in July, up by 303,000 from June. According to the Labor economists, that “reflected an increase in the number of persons whose hours were cut due to slack work on business conditions.’’
Some employers are also reporting signs of slack in the job market.
Aaron Sanandres, CEO and co-founder Untuckit, an online clothing company with nearly 90 stores, has noticed that in the last few weeks it’s been a bit easier filling jobs at the corporate headquarters in New York and part-time roles at the stores. For example, Sanandres noted that his company was able to hire two people in e-commerce in less than a month. In the past, it took more than twice that long.
“We have had a plethora of candidates, ” Sanandres added. He also said the labor market has been loosening up for engineers, likely as a result of some layoffs at technology companies. Untuckit, like many retailers, has lost a good chunk of hourly workers to gig jobs that offer more flexibility. Sanandres said the company is still fighting that competition, but it’s getting easier.
The Labor Department reported Tuesday that employers posted 10.7 million job openings in June — a healthy number but the lowest since September.
Even with some tightening in the labor market in some sectors, the employment data released Friday resoundingly shows an astonishingly strong jobs market in the U.S.
“Underestimate the U.S. labor market at your own peril,” said Nick Bunker, head of economic research at the Indeed Hiring Lab. “Yes, output growth might be slowing and the economic outlook has some clouds on the horizon. But employers are still champing at the bit to hire more workers. That demand may fade, but it’s still red hot right now.”