The US Added 528,000 Jobs in July, Showing a Booming Labor Market Despite Recession Fears

Job creation beat economists’ forecasts in July as a strong labor market overcame higher interest rates and high inflation.

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The U.S. economy added 528,000 nonfarm payrolls last month, the Bureau of Labor Statistics announced Friday. Economists polled by Bloomberg had expected a gain of 250,000 payrolls. The print shows that job growth recovered from the previous month as labor demand remained steady over the summer.

June’s increase was updated to 398,000 payrolls from 372,000. The May count was revised up to a final count of 386,000, up from the previous total of 384,000 jobs.

Global employment is now above levels seen just before the pandemic arrived. Several sectors, including government, have yet to fully recover, but changes in the economy and the way Americans work will likely have a lasting effect on the makeup of the labor market.

The unemployment rate fell to 3.5%, the report said. That was below the average economist forecast of 3.6% and matched the five-decade low seen before the pandemic.

“If you thought the economy was in recession, you’d be wrong,” said John Leer, chief economist at Morning Consult. “Along with falling gas prices, the economic outlook for the third quarter is starting to improve.”

Leisure and hospitality again led employment growth with an increase of 96,000 jobs. Within this sector, restaurants and bars had 74,000 new payrolls. Employment in the sector remains down about 1.2 million payrolls from pre-crisis levels, but recent months suggest these companies will continue to add jobs faster.

Professional and business services followed with a gain of 89,000 payrolls. Healthcare companies created 70,000 jobs and the government added 57,000 new payrolls.

Clothing and accessories stores posted the biggest drop in employment, shedding 5,200 jobs during the month. Some sectors saw hiring virtually unchanged for the month and most posted healthy gains.

The July report shows a months-long trend of moderate deceleration in job growth. The pace of hiring has been unusually brisk throughout 2022, as strong demand for corporate workers overshadowed headwinds such as Federal Reserve rate hikes and persistently higher prices. June job postings data suggested job demand may be slowing, but with overall openings still above 10 million and nearly doubling the number of available workers, the economy is likely to continue adding payrolls short term.

Other measures included in the report were equally encouraging. Average hourly earnings rose $0.15, or 0.5%, to $32.27 in July, beating estimates for a 0.3% increase. The increase offers some relief to Americans bearing the brunt of sky-high inflation. The inflation problem has left most workers with negative real wage growth, meaning their wages are not rising fast enough to keep up with rising prices. While July’s gain alone won’t change the script, it does indicate that workers are still making historically significant wage gains.

Labor force participation, however, continued to trend in the wrong direction. The rate, which tracks the share of Americans who are working or actively looking for work, fell to 62.1 percent from 62.2 percent, marking a second straight decline. With the labor market still extraordinarily tight and some 58 million Americans out of work, a strong recovery in participation will be needed for the labor supply to balance with massive business demand.

The economic context, however, is increasingly difficult. The Fed raised rates by 0.75 percentage points in late July, matching the size of its June hike and pushing the federal funds rate to a range of 2.25% to 2.5%. This range is generally considered “neutral” by Fed officials, meaning it neither stimulates nor constrains the economy. This means that borrowing costs are no longer at the low levels that supported businesses over the past two years.

The strong July numbers leave the door open for the Fed to continue raising rates at an aggressive pace. The central bank has targeted the labor market as an area where it may cool demand, and officials have repeatedly pointed to wage growth as an area of ​​potential concern. Bigger-than-expected increases in wages and overall payrolls signal the Fed will continue to raise rates in hopes of rebalancing the labor market.

“Not only does the labor market certainly remain tight, but wage growth is uncomfortably strong,” said Seema Shah, chief global strategist at Principal Global Investors. “The Fed has its work cut out for it to create enough slack that can ease price pressures.”

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