The US labor market defies recession fears with a surge in employment growth in July

  • Non-farm wages rise by 528,000 in July
  • The unemployment rate drops to 3.5% from 3.6% in June
  • The average hourly wage increases by 0.5%; up 5.2% year on year
  • The participation rate drops to 62.1% from 62.2% in June

WASHINGTON, Aug 5 (Reuters) – US employment growth unexpectedly accelerated in July, bringing employment levels above pre-pandemic levels and pouring cold water on fears that the economy was in recession.

The Labor Department’s employment report on Friday, followed closely, also showed that employers continue to raise wages at a rapid pace and generally maintain longer hours for workers. The sustained strength of the labor market could give the Federal Reserve the freedom to continue aggressively raising interest rates.

“If the US economy is in 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 aggressively advance its fight against inflation.”

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Non-farm wages rose by 528,000 jobs last month, the biggest increase since February, according to the factory survey. The June data was revised up to show 398,000 jobs created instead of the 372,000 previously reported. July marked the 19th consecutive month of wage expansion and wiped out economists’ expectations of earning just 250,000 jobs.

The Reuters survey estimates for the number of jobs earned ranged from a low of 75,000 to a high of 325,000.

The job market has now made up for all the jobs lost during the COVID-19 pandemic, although government employment remains at around 597,000 jobs in the hole. Overall employment is now 32,000 more jobs than in February 2020.

It took just under 2-1 / 2 years to recover all jobs 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 and officials promised further hikes are coming as the US central bank tries to curb inflation. Annual consumer prices are rising at the fastest pace in the past four decades. Since March, the Fed has raised its benchmark overnight interest rate from nearly zero to a range of 2.25% to 2.50%.

“It would seem increasingly likely that the Fed will be able to maintain its current trajectory without constantly looking over its shoulder, making it the envy of world economies that are all facing the same sharp balancing act right now,” said James Bentley. a business director at the online financial markets.

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 swings in inventories and the trade deficit linked to tangled 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 spread throughout the economy, lasting more than a few months, normally visible in manufacturing, employment. , real income, and other indicators. “

But even with the strong job gains in July, some cracks are forming in the job market. Companies in the interest rate sensitive construction, finance, technology and retail sectors are laying off workers. However, with 10.7 million jobs at the end of June and 1.8 for every unemployed, a sharp slowdown in wage growth is unlikely this year.

A pedestrian passes a “Help Wanted” sign at the door of a hardware store in Cambridge, Massachusetts, USA, July 8, 2022. REUTERS / Brian Snyder /

Wall Street shares traded lower. The dollar rose against a basket of currencies. US Treasury prices have fallen.

DIFFUSED EARNINGS

Last month’s large job earnings were led by the leisure and hospitality industry, which added 96,000 positions, most of them in restaurants and bars. But employment in leisure and hospitality remains down 1.2 million from the February 2020 level.

Payrolls for professional and corporate services increased 89,000, while the healthcare sector added 70,000 jobs. Government employment increased by 57,000 jobs, aided by local government education. Construction added 32,000 jobs while manufacturing wages increased by 30,000.

The details of the household survey from which the unemployment rate is derived were mixed. While the unemployment rate fell to a pre-pandemic low of 3.5% from 3.6% in June, this is due to 63,000 people leaving the workforce. The workforce has now declined for two consecutive months.

The labor force participation rate, or the percentage of working-age Americans who have a job or are looking for one, fell to 62.1% from 62.2% in June. This mainly reflected a decline in teen participation.

The participation rate of the preschool population rose to 82.4% from 82.3% in June. The employment-to-population ratio for this cohort rebounded to 80%, consistent with full employment.

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

But domestic employment rebounded 179,000 jobs after dropping to 315,000 in June and the number of people suffering long periods of unemployment fell from 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.

As the labor market tightened further, average hourly wages increased by 0.5% after rising 0.4% in June. This left the year-over-year increase in wages at 5.2%. The working week remained unchanged at 34.6 hours.

Wage increases were mainly driven by service sector industries, including leisure and hospitality services, financial and professional services, and business. A take-home pay proxy rose 1.2% on a monthly basis, which bodes well for consumer spending due to falling gasoline prices.

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

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Reportage by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao

Our Standards: Thomson Reuters Trust Principles.

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