The labor market has improved further, a surprisingly positive sign for the economy


The strength of the labor market contrasts with other economic indicators, which show a contraction of the American economy during the first six months of the year.

The pace of hiring rose unexpectedly last month as the US labor market showed surprising strength in the face of high inflation and a slowdown in economic activity.

Employers added 528,000 jobs in July according to the Labor Department – ​​a significant acceleration from the previous month.

The recovery in job growth surprised analysts who expected a slowdown. The US economy has now replaced all of the jobs that were lost in the early months of the pandemic.

July’s gains were widespread, with bars and restaurants adding 74,000 jobs, factories 30,000 jobs and retailers 22,000 jobs.

Construction companies also added workers, despite a slowdown in residential construction amid rising interest rates.

No sign of widespread job cuts

Separate reports from the Labor Department this week showed that the number of unfilled job openings fell slightly, while the number of people filing new applications for unemployment benefits increased.

Still, there are no signs of widespread layoffs or a sharp rise in unemployment, although some companies like business app Robinhood have recently announced job cuts.

“I think what we’re seeing is the soft landing that a lot of people are hoping for,” said Dave Gilbertson, vice chairman of UKG, which tracks the working hours of some four million hourly workers. “I really believe the labor market will be tight for a long time.”

The strength of the labor market contrasts with other economic indicators, which show the The US economy is shrinking during the first six months of the year.

It’s often a sign of recession, but many observers find it difficult to reconcile with an economy that has created more than 3 million jobs this year.

“If you think about what a recession really is, it’s a broad-based decline in many industries that lasts longer than two months,” Federal Reserve Chairman Jerome Powell said last week. “It doesn’t look like that.”

A sign advertises aid for The Goldenrod, a popular restaurant and candy store, Wednesday, June 1, 2022, in York Beach, Maine.

Robert F. Bukaty/AP Photo

A sign advertises aid for The Goldenrod, a popular restaurant and candy store, Wednesday, June 1, 2022, in York Beach, Maine.

The Fed faces a difficult task

Powell and his central bank colleagues are deliberately trying to slow the economy by raising interest rates in an effort to curb inflation. But they hope to do so without triggering a recession or widespread job loss.

“We think there’s a way for us to be able to bring inflation down while maintaining a strong labor market,” Powell said. “We know the path has clearly narrowed.”

The central bank would actually appreciate some cooling in the labor market, as red-light wage growth has the potential to stoke inflation. Private sector wages have jumped a whopping 5.7% for the twelve months ending June, while the cost of benefits for employers increased by 5.3%.

“Wage gains and benefits growth are great for households,” House said. “But it still lags inflation and that makes the Fed’s inflation problem very difficult to control and reduce.”

Not all recessions are created equal

House expects job growth to continue to slow this year as interest rates rise and consumer spending weakens. Even if the Fed’s efforts to control inflation lead to a recession, as many forecasters expectit is likely to be much milder than the last two economic downturns, in 2007-2009 and 2020.

“Not all recessions are as deadly as a financial crisis or a global pandemic,” House said.

Friday’s report shows fewer people were working or looking for work in July, after a substantial decline in the labor force the previous month.

“Given the inflation that households are currently experiencing, this could encourage some workers to return to the workforce,” House said, “just to help shore up their finances.”


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