U.S. job growth accelerated in July across nearly all industries, restoring nationwide employment to its prepandemic level, despite widespread expectations of a slowdown as the Federal Reserve raises interest rates to fight inflation.
Employers added 528,000 jobs on a seasonally adjusted basis, the Labor Department said on Friday, more than doubling what forecasters had projected. The unemployment rate ticked down to 3.5 percent, equaling the figure in February 2020, which was a 50-year low.
The robust job growth is welcome news for the Biden administration in a year when red-hot inflation and fears of recession have been recurring economic themes. “Today’s jobs report shows we are making significant progress for working families,” President Biden declared.
The labor market’s continued strength is all the more striking as gross domestic product, adjusted for inflation, has declined for two consecutive quarters and as consumer sentiment about the economy has fallen sharply — along with the president’s approval ratings.
“I’ve never seen a disjunction between the data and the general vibe quite as large as I saw,” said Justin Wolfers, a University of Michigan economist, noting that employment growth is an economic North Star. “It is worth emphasizing that when you try to take the pulse of the overall economy, these data are much more reliable than G.D.P.”
But the report could stiffen the Federal Reserve’s resolve to cool the economy. Wage growth sped up, to 5.2 percent 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 steepest inflation in four decades, and policymakers have signaled that more increases are in store. That strategy is likely to lead to a slowdown in hiring later in the year as companies cut payrolls to match expected lower demand.
“At this stage, things are OK,” said James Knightley, the chief international economist at the bank ING. “Say, December or the early part of next year, that’s where we could see much softer numbers.”
The nation lost nearly 22 million jobs at the outset of the pandemic. The recovery has been far swifter than those after previous recessions, though employment is still lower than would have been expected if Covid-19 had not struck.
The July gains were the strongest in five months and were spread across nearly all corners of the economy, even as consumers have been shifting their spending from goods and toward out-of-the-house experiences unavailable during two years of public health restrictions.
The State of Jobs in the United States
Employment gains in July, which far surpassed expectations, show that the labor market is not slowing despite efforts by the Federal Reserve to cool the economy.
Leisure and hospitality businesses led the gains, adding 96,000 jobs, including 74,000 at bars and restaurants. The sector has been the slowest to recover its losses from the pandemic and remains 7.1 percent below its level in February 2020.
Professional and business services followed close behind, adding 89,000 jobs across management occupations, architecture and engineering services, and research and development. That sector, which suffered little during the pandemic, is now nearly a million jobs above where it stood before the last recession.
Charleen Ferguson has been part of that boom. As the sales and marketing director of a technology services provider in Dallas, she has struggled for months to hire qualified workers at the wages she can afford.
“The people that we used to pay $22 an hour to start are now asking for $35 to $40 an hour,” Ms. Ferguson said. “Most of them that apply for a job haven’t even finished school.”
Her firms’ clients include accountants, manufacturers and local chambers of commerce, all nervous about the economy’s direction. For now, she is holding the line, investing in automation software and trying to hold on to her workers.
“This is not the time to get rid of your employees and not do your regular marketing, no matter what business you’re in,” Ms. Ferguson said.
The only broad industry to lose jobs in July was auto manufacturing, which shed about 2,200 as companies continued to struggle to obtain the parts necessary to produce finished vehicles. The public sector added 57,000 employees, particularly teachers, but remained 2.6 percent below its prepandemic level.
In crucial industries like technology, if some employers begin layoffs, those workers are likely to be absorbed by companies that would have liked to staff up but couldn’t find people. And for many kinds of businesses, if orders slow down more broadly, enough had built up to bolster payrolls into autumn.
For example, with mortgage rates rising and new housing starts and permits beginning to fall, jobs in residential construction would be expected to decline. Nevertheless, the construction industry added 32,000 jobs in July.
“In industries where we would normally see that initial slowdown — construction, manufacturing, automotive — because of supply chain issues, there’s a backlog,” said Amy Glaser, senior vice president for business operations at the global staffing firm Adecco. “That’s also helping us navigate through this time, because it’ll take several months to catch up.”
Paradoxically, fear of a downturn may be motivating more people to take jobs while they are still available, and stay put rather than leaving. The number of people unemployed for 27 weeks or more sank to 1.1 million in July, while the share of people quitting their jobs has been steady or falling since February. Small businesses have reported that while hiring remains a top concern, availability of workers has improved slightly in recent months.
“Workers by and large have had the luxury of choice over the past year in terms of deciding which of multiple offers to pick,” said Simona Mocuta, chief economist at State Street Global Advisors. “If indeed the consumer sentiment surveys are right and the sense is that things are starting to shift, maybe there’s an incentive for you to make your choice and be done with it.”
In a substantial asterisk for the report’s broad strength, however, high demand has done little to expand the ranks of available workers by bringing people off the sidelines of the labor market.
The overall labor force participation rate fell slightly to 62.1 percent, 1.3 percentage points below its level in February 2020. Policymakers have watched that figure closely, because a larger pool of available workers could contain labor costs and help relieve inflation.
People over 55 in particular have not gone looking for jobs in large numbers, even as bank accounts that swelled during the pandemic have been depleted and the falling stock market has taken a chunk out of 401(k) accounts, raising fears of inadequate retirement savings.
Some of that, evidence suggests, could be due to the increasing prevalence of debilitating long Covid. John Leer, chief economist at the polling and analytics firm Morning Consult, said surveys showed that infection worries persisted — but also that there might simply not be wide enough awareness of the opportunities available.
“I think it’s a reflection of information asymmetries,” Mr. Leer said. “We know there’s a lot of offers out there, but if you’re sitting on the sidelines, it’s very difficult to know that your skills, maybe in a restaurant, could be fairly quickly transformed and moved into transportation or warehousing.”
Jessica Buckley, who lives in Maine, has been one of those contemplating a new career but not quite taking the plunge, although the state’s rate of job openings is above the national average.
She worked in agricultural marketing until about a decade ago, when she decided to stay home with her children. When she started looking for a job again, she found nothing comparable available in the region, and she has been reluctant to switch fields while the family can get by on her husband’s income.
Increasingly, though, she is open to becoming a paralegal, or even working in restaurants, where wages have risen 18.6 percent — not adjusted for inflation — since the beginning of the pandemic.
“I would start bartending as well, or even going back to being wait staff, because there’s something appealing about just showing up, doing a thing, and leaving,” said Ms. Buckley, who is 52. “Everything’s on the table.”
Ben Casselman contributed reporting.
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