U.S. job growth accelerated in July across nearly all sectors, restoring nationwide employment to pre-pandemic levels, despite widespread expectations of a slowdown as the Federal Reserve raises interest rates to fight inflation.
Employers added 528,000 jobs on a seasonally adjusted basis, the Labor Department said Friday, more than double what forecasters had expected. The unemployment rate fell to 3.5%, matching the February 2020 figure, which was a 50-year low.
Robust job growth is welcome news for the Biden administration in a year when runaway inflation and recession fears have been recurring economic themes. “Today’s jobs report shows that we are making significant progress for working families,” President Biden said.
The continued strength of the labor market is all the more striking as gross domestic product, adjusted for inflation, has shrunk for two consecutive quarters and consumer sentiment towards the economy has fallen sharply. – along with the President’s approval ratings.
“I’ve never seen a disjunction between the data and the general mood as big as I’ve seen it,” said Justin Wolfers, an economist at the University of Michigan, noting that job growth is a economic polar star. “It’s worth pointing out that when you’re trying to take the pulse of the overall economy, this data is much more reliable than GDP”
But the report could bolster the Federal Reserve’s resolve to cool the economy. Wage growth has accelerated to 5.2% over the past year, indicating that labor costs could fuel higher prices.
The Fed raised interest rates four times in its battle to rein in the strongest inflation in four decades, and policymakers signaled more hikes were on the way. This strategy will likely lead to a slowdown in hiring later in the year as companies cut payrolls to meet the expected drop in demand.
“Things are going well at this stage,” said James Knightley, ING Bank’s chief international economist. “Let’s say December or early next year, that’s when we might see much lower numbers.”
The country lost nearly 22 million jobs at the start of the pandemic. The recovery has been much faster than those after previous recessions, although employment is still lower than one would have expected if Covid-19 had not struck.
July’s gains were the largest in five months and spread across nearly every corner of the economy, even as consumers shifted spending from goods to out-of-home experiences unavailable during two years of restrictions of public health.
The state of employment in the United States
Employment gains in July, which far exceeded expectations, show the labor market is not slowing despite the Federal Reserve’s efforts to cool the economy.
Leisure and hospitality businesses led the gains, adding 96,000 jobs, including 74,000 in bars and restaurants. The sector has been the slowest to recoup its losses from the pandemic and remains 7.1% below its February 2020 level.
Professional and business services followed closely, adding 89,000 jobs in management occupations, architectural and engineering services, and research and development. This sector, which suffered little during the pandemic, is now almost a million jobs above what it was before the last recession.
Charleen Ferguson was part of this boom. As the director of sales and marketing for a technology service provider in Dallas, she struggled for months to hire skilled workers at the wages she can afford.
“People we used to pay $22 an hour to start are now asking $35 to $40 an hour,” Ms. Ferguson said. “Most of them who apply for a job haven’t even finished school.”
Clients of his firms include accountants, manufacturers and local chambers of commerce, all concerned about the direction of the economy. For now, it is holding its own, investing in automation software and trying to keep its employees.
“Now is not the time to get rid of your employees and not do your usual marketing, whatever your business,” Ms Ferguson said.
The only major industry to lose jobs in July was auto manufacturing, which lost around 2,200 as companies continued to struggle to get the parts needed to produce finished vehicles. The public sector added 57,000 employees, especially teachers, but remained 2.6% below its pre-pandemic level.
In crucial sectors like technology, if some employers start laying off, those workers are likely to be absorbed by companies that would have liked to recruit staff but could not find staff. And for many types of businesses, if orders slowed more broadly, enough would have accumulated to sustain payrolls into the fall.
For example, with rising mortgage rates and falling housing starts and permits, one would expect residential construction jobs to decline. Nevertheless, the construction industry added 32,000 jobs in July.
“In sectors where we would normally see this initial downturn – construction, manufacturing, automotive – due to supply chain issues, there is a backlog,” said Amy Glaser, senior vice president of business operations at the company. Adecco Recruitment World. “It also helps us get through this period, because it will take several months to catch up.”
Paradoxically, fear of a downturn may motivate more people to accept jobs while they are still available and to stay put rather than leave. The number of people unemployed for 27 weeks or more fell to 1.1 million in July, while the share of people leaving jobs has been stable or falling since February. Small businesses reported that while hiring remains a major concern, the availability of workers has improved slightly in recent months.
“Workers have by and large had the luxury of choosing over the past year to decide which of several offers to choose,” said Simona Mocuta, chief economist at State Street Global Advisors. “If indeed the consumer sentiment surveys are accurate and the sentiment is that things are starting to change, you may be incentivized to take your pick and be done with it.”
In a substantial asterisk for the overall strength of the report, however, strong demand has done little to expand the ranks of available workers by pushing people away from the labor market.
The overall labor force participation rate fell slightly to 62.1%, 1.3 percentage points below its February 2020 level. Policymakers have been watching this figure closely, as a larger pool of workers available could contain labor costs and help reduce inflation.
People over 55 in particular have not gone looking for jobs in large numbers, even as bank accounts that swelled during the pandemic depleted and the stock market crash took some of the 401(k) accounts ( k), raising fears of insufficient retirement savings. .
Part of this, according to the evidence, could be due to the increasing prevalence of long debilitating Covid. John Leer, chief economist at polling and analysis firm Morning Consult, said surveys showed concerns about the infection persisted – but also that there may simply be no not enough knowledge about the opportunities available.
“I think it’s a reflection of information asymmetries,” Leer said. “We know there are a lot of offers, but if you’re sitting on the sidelines, it’s very hard to know that your skills, maybe in a restaurant, could be transformed quite quickly and moved into transportation. or storage.”
Jessica Buckley, who lives in Maine, is among those considering a new career but hasn’t quite taken the plunge, despite the state’s job opening rate being above average national.
She worked in agricultural marketing until a decade ago when she decided to stay home with her children. When she started looking for a job again, she found nothing comparable in the area and was reluctant to change fields when the family could live on her husband’s income.
Increasingly, however, she is willing to become a paralegal, or even work in restaurants, where salaries have risen 18.6% – not adjusted for inflation – since the start of the pandemic.
“I would also start being a bartender, or even go back to being a waitress, because there’s something appealing about showing up, doing something and leaving,” said Ms Buckley, who is 52. “It’s all on the table.”
Ben Casselman contributed report.