U.S. job growth accelerated in July in nearly all industries, bringing employment across the country back to its pre-pandemic level, despite pervasive expectations of a slowdown as the Federal Reserve raises interest rates to combat inflation.
The Labor Department said Friday that employers added 528,000 jobs on a seasonally adjusted basis, more than double what forecasters had expected. The unemployment rate fell to 3.5%, which is equal to the figure recorded in February 2020, which was the lowest level in 50 years.
Strong job growth is welcome news for the Biden administration in a year when hyperinflation and fears of a recession have been recurring on economic issues. “Today’s jobs report shows that we are making significant progress for working families,” President Joe Biden declared.
The continued strength of the labor market is quite astonishing, with GDP, adjusted for inflation, falling for two consecutive quarters, and with consumer sentiment about the economy falling sharply — along with the president’s approval ratings.
“I’ve never seen a disconnect between the data and the general atmosphere so great as I’ve seen it,” said Justin Wolfers, an economist at the University of Michigan, noting that employment growth is one of Northstar’s economic factors. “It’s worth emphasizing that when you’re trying to measure the pulse of the macroeconomy, that data is more reliable than GDP.”
But the report could underline the Fed’s determination to cool the economy. Wage growth accelerated to 5.2% over the past year, indicating that labor costs could add fuel to higher prices.
The Fed has raised interest rates four times in its battle to curb the largest inflation in four decades, and policymakers signaled that more increases are in store. This strategy is likely to lead to a slowdown in hiring later in the year as companies cut payrolls to match expected lower demand.
Already, surveys of restaurants, home builders and manufacturers have reflected concerns that current spending may not be sustained. Initial claims for unemployment insurance increased, and job opportunities declined for three consecutive months.
“At this point, things are fine,” said James Knightley, chief international economist at ING Bank. “Say, December or the first part of next year, where we can see much lower numbers.”
The nation lost nearly 22 million jobs at the start of the pandemic. The recovery has been much faster than the recovery after previous recessions, although employment is still lower than would have been expected had the coronavirus not occurred.
July’s gain was the strongest in five months and spread to nearly all corners of the economy, even as consumers shifted their spending from goods to experiences outside the home unavailable during two years of public health restrictions.
The leisure and hospitality business led the gains, adding 96,000 jobs, including 74,000 in bars and restaurants. The sector has been the slowest to recover losses from the pandemic and is still 7.1% below its level in February 2020.
Professional and business services followed closely, adding 89,000 jobs across management, architecture, engineering services, and research and development. The sector, which has suffered little during the pandemic, is now about a million jobs higher than it was before the last recession.
Charlene Ferguson was part of that boom. As the director of sales and marketing for a technology services provider in Dallas, she struggled for months to hire qualified workers at the wages she could afford.
“People who used to pay $22 an hour to start are now asking $35 to $40 an hour,” Ferguson said. “Most of those who apply for a job haven’t even finished school.”
Her firm’s clients include accountants, manufacturers and local chambers of commerce, all of whom are concerned about the direction of the economy. For now, it’s holding the reins, investing in automation software and trying to hold onto its workers.
“This is not the time to weed out your employees and not do regular marketing, no matter what business you are in,” Ferguson said.
The only broad industry that lost jobs in July was the auto industry, which shed about 2,200 as companies continue to struggle to get the parts needed to produce the final cars. The public sector added 57,000 employees, especially teachers, but remained 2.6% below its pre-pandemic level.
In critical industries like technology, if some employers start laying off workers, those workers are likely to be absorbed by companies that wanted to hire employees but were unable to find people. And for many types of companies, if orders slowed more broadly, it could have accumulated enough to boost payrolls in the fall.
For example, as mortgage rates rise and new homes and permits begin to fall, jobs in residential construction are expected to decline. However, the construction industry added 32,000 jobs in July.
“In industries where we typically see this initial slowdown — construction, manufacturing, automotive — due to supply chain issues, there is a backlog,” said Amy Glaser, senior vice president of commercial operations at global staffing firm Adecco. “It also helps us navigate through this time, because it will take several months to catch up.”
Ironically, the fear of an economic downturn may motivate more people to take jobs while they are still available, and to stay put rather than leave. The number of people out of work for 27 weeks or more fell to 1.1 million in July, while the proportion of people who quit their jobs has remained flat or declining since February. Small businesses report that while hiring remains a major concern, the availability of workers has improved slightly in recent months.
“Workers on the whole have had the luxury of choice over the past year in terms of deciding which of the multiple offerings to choose,” said Simona Mokota, chief economist at State Street Global Advisors. “If the consumer surveys are really correct and you feel like things are starting to turn, you may have an incentive to make your choice and be done with it.”
However, in the large asterisk of the report’s broad strength, high demand did little to expand the ranks of available workers by driving people away from the labor market’s margins.
The overall labor force participation rate fell slightly to 62.1%, 1.3 percentage points below its level in February 2020. Policy makers have been watching this figure closely, because a larger pool of available workers can contain labor costs and help mitigate inflation.
Over-55s in particular haven’t gone job hunting in droves, even as bank accounts that swelled during the pandemic have been depleted and a plunging stock market has taken a portion of 401(k) accounts, prompting fears of insufficient retirement savings.
Evidence suggests that some of this may be due to the increased spread of the long, debilitating Covid virus. John Lear, chief economist at survey and analytics firm Morning Consult, said surveys have shown that contagion fears remain — but also that there may not be a broad enough awareness of the opportunities.
“I think it’s a reflection of the information asymmetry,” Lear said. “We know there’s a lot of showing, but if you’re sitting on the sidelines, it’s very hard to know that your skills, perhaps in a restaurant, can turn fairly quickly and shift it to transportation or storage.”
Jessica Buckley, who lives in Maine, has been one of those considering a new career but hasn’t quite succeeded, even though the state’s job vacancy rate is higher than the national average.
She worked in agricultural marketing until nearly a decade ago, when she decided to stay home with her children. When she started looking for a job again, she found nothing similar available in the area, and was reluctant to change her field of work while the family could provide for her husband’s income.
Despite this, it is increasingly open to becoming semi-legal, or even working in restaurants, where wages have risen 18.6% – not adjusted for inflation – since the start of the pandemic.
“I’m going to start at the bar as well, or even go back to work waiting for staff, because there’s just something attractive about just showing up, doing something, and leaving,” Buckley, 52, said. “Everything is on the table.”