What if we had a recession and everyone still had a job?
The U.S. economy added 528,000 jobs in July and the unemployment rate fell to 3.5 percent, the Department of Labor said Friday.
Economists had expected the economy to add 258,000 jobs and the unemployment rate to hold steady at 3.6 percent. The range of forecasts by economists surveyed by Econoday was between a gain of 2200,000 to 300,000.
The prior month’s already very high jobs figure of 372,000 was revised up to 398,000. The jobs market has now fully recovered from the pandemic job losses, with both the unemployment rate and total payrolls at their February 2020 prepandemic levels.
On average, the economy has added around 450,000 jobs per month in 2022, an extremely high rate of payroll building. This is even more extraordinary given the very low rate of unemployment and the fact that the U.S. economy contracted in both the first and second quarters of this year.
Average hourly earnings for all employees in the private sector rose by 15 cents, or 0.5 percent, to $32.27. The June wage gain was revised up from a 0.3 percent gain to a 0.4 percent gain. Over the past year, average hourly earnings have increased by 5.2 percent. June’s gain was revised up to 5.2 percent from 5.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees rose by 11 cents, or 0.4 percent, to $27.57. The wage gains were higher than expected.
The July figures and the upward revisions to June’s gains are likely to spark concerns over inflation persisting at very high levels. Particularly with economic output contracting, adding demand in the form of additional workers and higher wages is likely to push prices up.
The labor force participation rate ticked down a tenth of a point to 62.1 percent. This is still below the February 2020 level, when labor force participation was 63.4 percent.
Private sector payrolls grew by 471,000 in July. June’s private sector payroll number was revised up to 404,000 from 381,000.
The manufacturing sector saw a big jump in jobs, with payrolls rising by 30,000. The June figure was revised down by 2,000 to 27,000, still a solid gain for the sector. Jobs in the auto sector fell by 2,200. Durable goods overall added 21,000, a big jump from the prior month’s 8,000. Nondurable manufacturing added 9,000, a slowdown form 19,000 in June and 11,000 in May.
Construction added 32,000, twice June’s figure. That is surprising given the recent softening in home building and construction spending.
The services sector added 402,000 jobs. Leisure and hospitality, a sector that was hit hard by the pandemic, added 96,000 jobs. Retail trade added 21,6000 jobs.
Information technology, a sector where many layoffs have been announced and several companies have said they are freezing or slowing hiring, grew by just 400 jobs, the weakest sector in the report.
The U.S. economy has been extremely volatile in recent years, crashing as lockdowns took hold and then rebounding from the pandemic much faster than expected. The labor market, in particular, quickly recovered much of the damage done by 2020’s lockdowns and social distancing, with the unemployment rate dropping much faster than expected. Demand for goods soared as American incomes were pumped up with stimulus money from various government programs and social distancing rules left people bereft of many of the leisure services activities–sports, concerts, travel, movies–that typically would have drained bank accounts.
The supply side of the economy could not keep up with the shift into spending on goods, especially with many exporting countries also struggling with the pandemic. China’s ports have suffered a series of closures under the country’s zero-tolerance policy for Covid. Various stages of the global supply chain to build semiconductors have also broken down, creating shortages that forced makers of everything from cars, to appliances, to phones to slow production.
Despite the signs that the demand side of the economy had recovered and the supply side was straining, the Federal Reserve continued to keep rates low, fearful of repeating past mistakes of withdrawing economic support too early. Similarly, the Biden Administration and Democrats led by House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) pushed through an enormous spending program called the American Rescue Plan.
The result: an explosion of inflation that Fed policymakers and Biden administration initially insisted would be transitory. The Consumer Price Index was up 9.1 percent in June compared with a year earlier, the biggest surge in inflation since November 1981.
Outside the labor market, the rest of the economy has been showing signs of strain as inflation has acts as a tax on consumption, forcing consumers to forego discretionary spending so they can afford necessities. The economy shrank at an annualized rate of 1.6 percent in the first three months of the year and 0.9 percent in the April through June period. Two straight quarters of contraction is considered by many to be the marker of a recession, although many economists say the strength of the labor market indicates the economy is not actually in a recession.
Job openings, a measure of labor demand, were down 605,000 to 10.7 million on the last day of June, the fewest since September 2021. This was a far bigger contraction than expected. Job openings in the retail sector fell by nearly 30 percent, a surprising decline in labor demand for the sector.
The Federal Reserve has been rapidly raising interest rates. At the last two meetings, the Fed hiked its interest rate target by 0.75 basis points, the biggest hikes since 1994. Fed officials say they are hoping to cool demand for labor to bring down inflation. July’s job numbers indicate that these hikes have not yet slowed job creation and the labor market remains extremely tight.