U.S. economy blows past expectations by adding 528,000 jobs in July
Economists had been expecting about 250,000 new jobs
Defying anxiety about a possible recession and raging inflation, America's employers added a stunning 528,000 jobs last month, restoring all the jobs lost in the coronavirus recession. Unemployment fell to 3.5%, lowest since the pandemic struck in early 2020.
July's job creation was 130,000 more than than those produced in June, and the most since February.
The red-hot jobs numbers from the Labour Department on Friday arrive amid a growing consensus that the U.S. 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 this month.
Job surge could make inflation worse
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 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 labour market Friday, saying "it's the result of my economic plan."
The president has boosted job growth through his $1.9 trillion US coronavirus relief package and $1 trillion US 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 paychecks amid soaring inflation that remains front and centre.
Hourly earnings posted a healthy 0.5 per cent gain last month and are up 5.2 per cent 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 at the supermarket, gasoline station 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 Labour 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 labour force in July, trimming the share of those working or looking for work to 62.1 per cent last month from 62.2 per cent 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.
That dichotomy was on display in U.S. markets immediately after the jobs numbers dropped.
Stocks slid on the expectation that the Fed will feel pressured to continue with aggressive rate hikes, which is a threat to fast growing companies like technology stocks. The S&P 500 dropped 0.7 per cent. Treasury yields jumped as traders scrambled to put in bets for bigger hikes at the Fed's meeting next month. Of all major U.S. markets, the tech-heavy Nasdaq dropped the most.
"The strength of the labour 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."
Yet the economic backdrop remains troubling: Gross domestic product — the broadest measure of economic output — fell in both the first and second quarters; consecutive GDP drops is one definition of a recession.
The resiliency of the current labour market, especially the low jobless rate — is the biggest reason most economists don't believe a downturn has started yet, though they increasingly fear that one is on the way.
New Yorker Karen Smalls, 46, started looking for work three weeks ago — via job sites like ZipRecruiter and Indeed — as support staff to social workers who serve those with mental health issues.
"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 Feds 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 per cent 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.
Higher borrowing costs are taking a toll. Rising mortgage rates, for instance, have cooled another recent pillar of the U.S. economy, the housing market. Sales of previously occupied homes dropped in June for the fifth straight month.
Real estate companies — including lending firm loanDepot and online housing broker Redfin — have begun laying off workers.
Job market still imbalanced
Before Friday's blockbuster hiring report, the labour market had shown other signs of wobbliness.
The Labor Department reported Tuesday that employers posted 10.7 million job openings in June — a healthy number but the lowest since September.
And the four-week average number of Americans signing up for unemployment benefits — a proxy for layoffs that smoothes out week-to-week swings — rose last week to the highest level since November, though the numbers may have been exaggerated by seasonal factors.
"Underestimate the U.S. labour 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."