Nonfarm wages rose 528,000 for the month and the unemployment rate was 3.5%, easily surpassing the Dow Jones estimates of 258,000 and 3.6%, respectively. The unemployment rate has now returned to its pre-pandemic level and stood at its lowest level since 1969, although the rate for blacks rose 0.2 percentage points to 6%.
Wage growth also increased, as average hourly wages increased 0.5% for the month and 5.2% from the same period a year ago. These numbers add fuel to an inflation picture that already has consumer prices rising at the fastest rate since the early 1980s. The Dow Jones estimate was for a monthly gain of 0.3% and an annual increase of 4.9%.
More broadly, however, the report showed that the labor market remains strong despite other signs of economic weakness.
“There is no way to take the other side of this. There isn’t much, ‘Yeah, but’, other than the fact that it’s not good from a market or Fed perspective,” said Liz Ann. Sonders, Charles Schwab’s chief investment strategist. “For the economy, this is good news.”
Markets initially reacted negatively to the report as traders anticipated a strong counter-move from a Federal Reserve seeking to cool the economy and especially a heated job market. However, the Dow Jones Industrial Average ended the day higher, climbing around 74 points after a day of unstable trading.
Leisure and hospitality have paved the way for more jobs with 96,000, even though the sector is still 1.2 million fewer workers than its pre-pandemic level.
Professional and business services were next with 89,000. Healthcare added 70,000 and government paychecks increased by 57,000. Goods-producing industries also posted solid gains, with construction up 32,000 and production up 30,000.
Retail jobs increased by 22,000, despite repeated warnings from executives at Walmart, Target and elsewhere that consumer demand is changing.
A broader view of unemployment that includes those in part-time jobs for economic reasons as well as discouraged workers not looking for work remained unchanged at 6.7%.
Return to the pre-pandemic
Despite bearish expectations, July earnings were the best since February and well above the average increase of 388,000 jobs over the past four months. The BLS release noted that total nonfarm staff employment has increased by 22 million since the low in April 2020, when most of the US economy closed to cope with the Covid pandemic.
The totals for the previous months have been slightly revised, with May increasing by 2,000 to 386,000 and June from 26,000 to 398,000.
“The report throws cold water on a significant cooling in labor demand, but it’s a good sign for the US economy and workers in general,” Bank of America economist Michael Gapen said in a client note.
The BLS noted that private sector wages are now above the February 2020 level, just prior to the declaration of the pandemic, although government jobs are still lagging behind.
The unemployment rate fell, the result of both strong job creation and a labor force participation rate that fell by 0.1 percentage points to 62.1%, the lowest level for the year.
Economists have calculated that job creation will begin to slow as the Federal Reserve raises interest rates to cool inflation, which reaches its highest level in more than 40 years.
The strong number of jobs, coupled with higher-than-expected wage numbers, led to a shift in expectations for the rate hike expected for September. Traders are now considering a greater likelihood of a 0.75 percentage point hike for the next bout, which would be the third consecutive hike of that magnitude.
“On the one hand, it gives the Fed more confidence that it can tighten monetary policy without leading to a widespread rise in unemployment,” said Daniel Zhao, chief economist for job analytics site Glassdoor. “But it also shows that the labor market is not cooling, or at least it was not cooling as fast as expected. … At least, even if it is a surprise, I think the Fed is still on track to continue tightening the policy. monetary “.
Debate on the ‘academic’ recession
The Fed has raised benchmark interest rates four times this year by a total of 2.25 percentage points. This brought the federal funds rate to its highest level since December 2018.
The economy, meanwhile, has cooled significantly.
Gross domestic product, the measure of all goods and services produced, declined for the first two quarters of 2022, respecting a common definition of a recession. White House and Fed officials, as well as most Wall Street economists, say the economy is probably not in an official recession, but the slowdown has been evident.
“The recession debate at this point is more academic than anything else,” said Sonders, Schwab’s strategist. “There is no denying that growth has weakened. This is the only point in bringing out two quarters of negative GDP growth.”
Fed rate hikes aim to slow the economy and, in turn, a job market where job openings still outnumber available workers by almost 2 to 1. Bank of America said this week that its proprietary measures of labor market momentum show a still strong but slowing employment picture, largely due to tightening central bank policies.
The main reason for the downsizing was inflation, which was much stronger and more persistent than most policymakers had anticipated. Prices rose 9.1% in June from a year ago, the fastest rate since November 1981.
Correction: Prices increased 9.1% in June compared to a year ago. An older version incorrectly indicated the month.