US adds 372,000 new jobs in June

WASHINGTON – America’s employers shrugged off high inflation and weaker growth to add 372,000 jobs in June, a surprisingly strong gain that is likely to spur the Federal Reserve to continue raising interest rates sharply to cool the economy and stem inflation slow it down.

The jobless rate stayed at 3.6% in June for the fourth straight month, the Labor Department said on Friday, hitting a near 50-year low set before the pandemic hit early 2020.

Last year’s strong hiring wave has been good for job seekers and has resulted in higher wages for many workers. But it has also helped fuel the highest inflation in four decades and increased pressure on the Fed to further slow borrowing and spending.

Many employers still struggle to fill positions, particularly in the economy’s vast service sector, as Americans now travel, dine out, and attend public events much more frequently. The Fed may view June’s job gains as evidence that the rapid hiring rate is fueling inflation as companies raise wages to attract workers and then hike prices to meet their higher labor costs.

The Fed is already embarking on its fastest string of interest rate hikes since the 1980s, and further large hikes would make borrowing far more expensive for consumers and businesses, increasing the risk of a recession.

The continued desire of many companies to hire and grow is a bulwark against the likelihood of the economy sliding into recession next year. Even if a downturn does materialize, healthy employment and wage growth over the past year could help keep it relatively short and benign.

There are currently about two vacancies advertised for every unemployed person. And the number of people filing for unemployment benefits — a predictor of layoffs and a leading indicator of a downturn — remains well below historical averages, although it has been rising recently.

At the same time, economic growth has been negative for two consecutive quarters, consumers are reining in spending as inflation hits a four-decade high, and home sales have fallen as the Fed has hiked borrowing costs.

And attitudes could weaken in the coming months. The Fed wants job growth to slow at least moderately as part of its strenuous effort to cool the economy and curb high inflation. The Biden administration, too, has sought to portray any hiring drop as part of a welcome transition to a more sustainable economy that will help keep inflation low.

But the transition to a more sustainable pace of growth and hiring will likely be bumpy. For example, if the Fed’s rate cuts slow growth too much, as many analysts fear, the economy could slip into recession by next year. There are already signs of a slowdown. In May, inflation-adjusted consumer spending fell for the first time since December. Existing home sales are down nearly 9% year over year.

And some companies are announcing layoffs or have suspended hiring. In particular, several large retailers, including Walmart and Amazon, have said they have been hiring too many employees during the pandemic, with Walmart reducing its headcount through attrition.

Tesla is shedding about 3.5% of its total workforce. Netflix has laid off about 450 employees after reporting the loss of subscribers for the first time in more than a decade. The online car dealer Carvana and the real estate companies Redfin and Compass have also announced job cuts.

Fed Chair Jerome Powell has expressed hope that the economy will continue to expand even as the central bank raises borrowing costs at the fastest rates since the late 1980s. But Powell has also acknowledged that foreign factors, such as Russia’s invasion of Ukraine, which has led to higher gas and food prices, will make avoiding a recession difficult.

Last month he conceded that a recession “is not our intended outcome, but certainly a possibility.”

The labor market has recovered from the pandemic recession much faster than from previous downturns.