The U.S. economy continued to produce sturdy employment growth in July, but showed definite signs of cooling alongside the Federal Reserve’s battle to suppress inflation.
American employers added 187,000 jobs last month, the Labor Department reported on Friday, a figure that exceeded the flow of people entering the labor market. The unemployment rate sank back to 3.5 percent, near a record low.
The report shows that most people who want to work can find jobs, keeping upward pressure on wages. But with a revision of the June increase, it was the second straight month of gains below 200,000 — a figure that had previously been exceeded every month since January 2021.
Average hourly earnings rose 4.4 percent from a year earlier, slightly more than expected, and still faster growth than monetary policymakers would like.
With layoffs remaining low and the number of total hours worked sinking slightly for the third month in a row, it appears that corporate leaders are avoiding cutting payrolls even as business slows.
“For those who still believe that there may be a soft spot ahead, it’s going to be manageable,” said Dana Peterson, chief economist at the Conference Board. “It’s going to be short, it’s going to be shallow, so they’re not going to shed a bunch of workers.”
Economic growth has remained vigorous, and it has become clearer that the prospect of an outright recession is remote, if not beyond the horizon entirely.
Each sign of weakness so far has seemed to find a counterbalance. Escalating interest rates deflated the tech industry, but laid-off workers quickly found jobs in other sectors. Residential construction then slowed along with home sales, although there are signs of new momentum. Business investment has been fading, as borrowing has gotten more expensive, but consumer spending has picked up the slack — even if much of it is going on credit cards.
Kermit Baker, the chief economist at the American Institute of Architects, says that while the group’s billings index measuring new contracts for design firms has been wobbly for the better part of a year, he thinks the worst is over.
“I’m guessing when we look back on this period in a year from now, we’ll say that this was a series of rolling recessions,” Dr. Baker said. “There will be parts of the country that say, ‘That was a pretty rocky time.’ There will be other parts that say: ‘Recession? What recession?’”
Through it all, employment has not just exceeded its 2019 level, but it has even approached the trajectory it might have been on had the pandemic not intervened. Helping it along is a labor force that defied predictions of permanent shrinkage. A larger share of women in their prime working years are in the labor force than before the pandemic, and a renewed flow of immigrants has eased some of the most acute shortages.
Labor strife has threatened to cloud the employment picture this summer. The walkout by 160,000 members of the Hollywood actors’ union did not start early enough in July to affect the Bureau of Labor Statistics survey, but because striking workers are not counted as employed, the dispute could depress job data going forward.
There are other risks, including the resumption of student loan payments for tens of millions of borrowers in September, the debt overhang from still-vacant commercial office buildings and the rising tide of defaults on risky loans. That’s why most forecasters still expect very low to negative job growth toward the end of 2023, which may finally bring inflation back to the 2 percent rate that the Federal Reserve is looking for.
The New York Times
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