Economists say the stronger-than-expected report suggests the US is not yet in a recession. But other economic factors also point to a near future.
WASHINGTON – America’s hiring boom continued last month as employers added a surprise 528,000 jobs despite raging inflation and mounting fears of a recession.
The number of new hires in July increased from 398,000 in June. The unemployment rate fell to 3.5%.
The US economy contracted for the first two quarters of 2022 – an informal definition of a recession. However, most economists believe that the strong labor market has saved the economy from going into a downturn.
The US job market has repeatedly defied skeptics this year. Economists had only expected 250,000 new jobs this month.
Of course, the numbers released on Friday have political implications: rising prices and the risk of a recession are likely to weigh on voters in November’s midterm elections as President Joe Biden’s Democrats seek to retain control of Congress.
The economic environment is worrying: Gross domestic product – the broadest measure of economic output – declined in both the first and second quarters; Consecutive GDP declines is one definition of a recession. And inflation is at a 40-year high.
The resilience of the current job market, particularly the low unemployment rate, is the main reason why most economists believe a downturn has not yet begun, despite growing fears that one is imminent. The story isn’t entirely reassuring: the unemployment rate was even lower – 3.5% – when an 11-month recession began in December 1969.
The recession is not an American problem alone.
In the UK, the Bank of England forecast on Thursday that the world’s fifth-biggest economy would slide into recession by the end of the year.
Russia’s war in Ukraine has clouded prospects across Europe. The conflict has tightened energy supplies and pushed up prices. European countries are bracing for the possibility that Moscow will further reduce – and possibly completely disrupt – natural gas flows used to power factories, generate electricity and heat homes in winter.
If Europeans cannot store enough gas for the cold months, industry can demand rationing.
Economies have been on a wild ride since the outbreak of COVID-19 in early 2020.
The pandemic brought economic activity to a near halt as businesses closed and consumers stayed at home. In March and April 2020, American employers cut a staggering 22 million jobs and the economy plunged into a deep, two-month recession.
But massive government stimulus – and the Federal Reserve’s decision to lower interest rates and pump money into financial markets – led to a surprisingly quick recovery. Factories, shops, ports and rail yards were surprised by the strength of the recovery and were inundated with orders and scramble to bring back the workers they had furloughed when COVID hit.
The result was a shortage of labor and supplies, late deliveries – and rising prices. In the United States, inflation has been rising steadily for more than a year. In June, consumer prices rose 9.1% year-on-year, the sharpest rise since 1981.
The Fed underestimated the resurgence of inflation, thinking prices would rise due to temporary supply chain bottlenecks. She has since acknowledged that the current wave of inflation is not, as it used to be called, “temporary”.
Now the central bank is reacting aggressively. It has raised its benchmark short-term interest rate four times this year and more rate hikes are on the horizon.
Higher borrowing costs are taking their toll. Rising mortgage rates, for example, have cooled a red-hot housing market. Previously occupied home sales fell for the fifth straight month in June.
Real estate companies — including lending company LoanDepot and online real estate broker Redfin — have started laying off workers.
The job market is showing other signs of wobble.
The Labor Department reported Tuesday that employers posted 10.7 million job vacancies in June — a healthy number but the lowest since September.
And the four-week average number of Americans filing for unemployment benefits — a proxy for layoffs that smoothes out week-to-week fluctuations — rose last week to its highest level since November, although the numbers may have been exaggerated by seasonal factors.
Friday’s jobs report comes at a critical time for President Biden, who has claimed the economy is merely slowing rather than heading into a recession. Inflation has left public support for Biden stubborn, but the administration has stressed that the 3.6% unemployment rate and solid job gains are signs of a healthy economy.
White House press secretary Karine Jean-Pierre said the administration expects the pace of hiring to slow further in the coming months as the unemployment rate is already near historic lows and fewer potential workers are available.
A slower pace of hiring and lower wage growth could also suggest inflationary pressures are easing, but the White House is trying to convince the American public that slower growth is a positive at a moment when Republican lawmakers say there already is recession has started; They cite the decline in GDP in the first half of the year.
“We assume that there will be around 150,000 jobs per month,” said Jean-Pierre at the briefing on Thursday. “That kind of job growth is consistent with the lower unemployment numbers we’ve seen.”
The Economist House in Wells Fargo expects employers to keep creating jobs for a few more months. But rising interest rates, she said, are gradually choking off economic growth.
“We’re actually looking at a real hiring drop in the first quarter, maybe the second quarter of next year,” she said. “Further tightening of monetary policy will affect general business conditions and hence labor demand.
“Our expectation is that the US economy is likely to slip into recession early in the year.”
Josh Boak in Washington and Courtney Bonnell in London contributed to this story.
https://www.king5.com/article/news/nation-world/recession-fears-jobs-report/507-f36c17cf-9fc4-496e-91b9-ccc0f1a58b63 Recession fears grow ahead of US jobs report