US employers added an astonishing 528,000 jobs last month despite flashing warning signs of an economic downturn, easing fears of a recession and handing President Joe Biden some good news heading into the midterm elections.
Unemployment dropped another notch, from 3.6 per cent to 3.5 per cent, matching the more than 50-year low reached just before the pandemic took hold.
The economy has now recovered all 22 million jobs lost in March and April 2020 when COVID-19 slammed the US.
The red-hot numbers reported Friday by the Labor Department are certain to intensify the debate over whether the US is in a recession.
“Recession — what recession?” wrote Brian Coulton, chief economist at Fitch Ratings. “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 last month, in a drop-off from June’s revised 398,000. Instead, July proved to be the best month since February.
The strong figures are welcome news for the Biden administration and the Democrats at a time when many voters are worried about the economy.
Inflation is raging at its highest level in more than 40 years, and the economy has contracted for two quarters in a row, which is the common — but informal — definition of a recession and does not take into account a host of other factors economists consider, such as the job picture.
At the White House, Biden credited the job growth to his policies, even as he acknowledged the pain being inflicted by inflation. He emphasized the addition of 642,000 manufacturing jobs during his watch.
“Instead of workers begging employers for work, we’re seeing employers have to compete for American workers,” the president said.
Biden has boosted job growth through his $1.9 trillion coronavirus relief package and $1 trillion bipartisan infrastructure law last year. Republican lawmakers and some leading economists, however, say the administration’s spending has contributed to high inflation.
The president has received some other good economic news in recent weeks, as gasoline prices have steadily fallen after averaging slightly more than $5 a gallon in June.
On Wall Street, stocks dropped after the employment report came out. 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 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.?
The Labor Department also reported that hourly earnings posted a healthy 0.5 per cent gain last month and are up 5.2 per cent over the past year. But that is not enough to keep up with inflation, and many Americans are having to scrimp to pay for groceries, gasoline, even school supplies.
Job growth was especially strong last month in the health care industry and at hotels and restaurants.
The number of Americans saying they had jobs rose by 179,000, while the number saying they were unemployed fell 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 from 62.2 per cent in June.
New Yorker Karen Smalls, 46, started looking for work three weeks ago as a member of the support staff for social workers.
“I didn’t realize how good the job market is right now,” she said 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 home and pays enough to let her take care of her two children.
Two years ago, the pandemic brought economic life to a near standstill as companies shut down and millions of people stayed home or were thrown out of work. The US 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 employees and supplies, delayed shipments and high inflation. In June, consumer prices were up 9.1 per cent from a year earlier, the biggest increase since 1981.
The Fed has raised its benchmark short-term interest rate four times this year in a bid to tame inflation, with more increases ahead.
Labor Secretary Marty Walsh conceded that businesses and consumers are worried about inflation but added: “Companies are still growing, and they’re looking for employees. And that’s a good sign.”
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. Department economists said that reflected an increase in the number of people whose hours were cut because of slack business.
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, noticed that in the past few weeks that it has been a bit easier filling jobs at the corporate headquarters in New York and part-time roles at the stores.
“We have had a plethora of candidates,” Sanandres said. He also said the labor market has been loosening up for engineers, probably as a result of some layoffs at technology companies.
Simona Mocuta, chief economist at State Street Global Advisors, was among those stunned by the strong hiring numbers when other indicators show an economy losing momentum.
Mocuta said it is possible that hiring rose so sharply last month because job candidates, seeing signs of an impending slowdown, are now more willing to accept jobs they would have balked at earlier in the year. Conditions may now be “shifting in employers’ favour,” she said.
Whatever the reason for it, the employment data released Friday shows an astonishingly strong and resilient job market.
“Underestimate the US 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.”