US labor market defies recession fears as job growth picks up in July

  • Nonfarm payrolls increase 528,000 in July
  • Unemployment rate falls to 3.5% from 3.6% in June
  • Average hourly earnings increase 0.5%; 5.2% year-on-year
  • Participation rate falls to 62.1% from 62.2% in June

WASHINGTON, Aug 5 (Reuters) – U.S. job growth unexpectedly accelerated in July, lifting the level of employment above its pre-pandemic level and throwing cold water on fears the economy was in recession.

Friday’s closely watched Labor Department employment report also showed employers continuing to raise wages at a strong pace and generally keeping more hours for workers. Continued strength in the labor market could give the Federal Reserve the leeway to continue to aggressively raise interest rates.

“If the US economy is in a recession, no one seems to have told employers,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina. “We suspect this data will give the Fed the confidence it needs to move forward aggressively in its fight against inflation.”

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Nonfarm payrolls increased by 528,000 jobs last month, the biggest increase since February, the establishment survey showed. June data was revised up to show 398,000 jobs created instead of the 372,000 previously reported. July marked the 19th straight month of payroll expansion and beat economists’ expectations for a gain of just 250,000 jobs.

Estimates from the Reuters survey of the number of jobs gained ranged from a low of 75,000 to a high of 325,000.

payroll surprise

The labor market has now regained all the jobs lost during the COVID-19 pandemic, although government employment is still around 597,000 jobs in the hole. Overall employment is now 32,000 jobs higher than it was in February 2020.

It took just under 2 1/2 years to get all the jobs back compared to at least six years after the Great Recession of 2007-2009.

Last week, the Fed raised its policy rate by three-quarters of a percentage point, with officials promising more hikes to come as the US central bank tries to rein in inflation. Annual consumer prices are rising at their fastest rate in four decades. Since March, the Federal Reserve raised its overnight benchmark interest rate from near zero to a range of 2.25% to 2.50%.

“It seems increasingly likely that the Fed can maintain its current trajectory without constantly looking over its shoulder, making it the envy of global economies that are enduring the same knife-edge balancing act right now. said James Bentley, a company director at Financial Markets Online.

US gross domestic product declined in the first and second quarters, meeting the standard definition of a recession. The 1.3% contraction of the economy in the first half of the year was mainly due to large fluctuations in inventories and a trade deficit linked to entangled global supply chains.

The National Bureau of Economic Research, the official arbiter of recessions in the United States, defines a recession as “a significant decline in economic activity that spreads throughout the economy, that lasts more than a few months, usually visible in the production, employment, real income, and other indicators”.

But even with solid July job gains, some cracks are forming in the job market. Companies in the interest-rate sensitive housing, finance, technology and retail sectors are laying off workers. Still, with 10.7 million job openings at the end of June and 1.8 job openings for every unemployed person, a sharp slowdown in payroll growth this year is unlikely.

A pedestrian walks past a “Help Wanted” sign on the door of a hardware store in Cambridge, Massachusetts, U.S., July 8, 2022. REUTERS/Brian Snyder/

Stocks on Wall Street were trading lower. The dollar rallied against a basket of currencies. US Treasury prices fell.

OVERALL EARNINGS

The broad job gains last month were led by the leisure and hospitality industry, which added 96,000 jobs, most of them in restaurants and bars. But leisure and hospitality employment is still down 1.2 million from its February 2020 level.

Professional and business services payrolls increased by 89,000, while the health sector added 70,000 jobs. Government employment increased by 57,000 jobs, boosted by local government education. Construction added 32,000 jobs, while manufacturing payrolls increased by 30,000.

Details of the household survey from which the unemployment rate is derived were mixed. While the jobless rate fell to its pre-pandemic low of 3.5% from 3.6% in June, that was because 63,000 people dropped out of the workforce. The workforce has now declined for two consecutive months.

The labor force participation rate, or the share of working-age Americans who have or are looking for a job, fell to 62.1% from 62.2% in June. That primarily reflected a drop in teen participation.

Participation rate

The participation rate of the population of productive age increased to 82.4% from 82.3% in June. The employment-to-population ratio for this cohort recovered to 80%, consistent with full employment.

The number of people working part-time for economic reasons rose by 303,000 to 3.9 million after falling to a more than 20-year low in June.

But household employment recovered by 179,000 jobs after falling 315,000 in June, and the number of people experiencing prolonged spells of unemployment fell by 269,000 to 1.1 million, the lowest level since April 2020. long-term unemployed accounted for 18.9% of the 5.7 million unemployed. in July.

With the labor market tightening further, average hourly earnings rose 0.5% after rising 0.4% in June. That left the year-over-year increase in wages at 5.2%. The workweek was unchanged at 34.6 hours.

Wage increases were primarily driven by service sector industries, including leisure and hospitality, financial services, and professional and business services. A gauge of take-home pay rose 1.2% monthly, boding well for consumer spending amid falling gasoline prices.

“The risk to wage growth appears to be on the upside in the near term given persistent labor market strength and the lack of a rebound in labor supply,” said Lydia Boussour, leading US economist at Oxford Economics. In New York.

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Information from Lucía Mutikani; Edited by Chizu Nomiyama and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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