Job creation in July outpaced previous economists’ forecasts as labor market strength overcame high interest rates and high inflation.
The US economy added 528,000 non-farm payrolls last month, the Bureau of Labor Statistics announced Friday. Economists surveyed by Bloomberg estimated a profit of 250,000 payrolls. The print shows job growth ahead of the month as labor demand remains stagnant during the summer.
The June increase was updated from 372,000 to 398,000 payrolls. May’s numbers were revised to a final count of 386,000, up from the earlier total of 384,000.
Overall employment is now well above the levels seen just before the pandemic hit. Many sectors, including government, have yet to fully rebound, but changes in the economy and how Americans work will have a lasting impact on the makeup of the labor market.
According to the report, the unemployment rate fell to 3.5%. This came in below the average economist forecast of 3.6% and matched the five-decade low seen before the pandemic.
“If you thought the economy was in recession, you were wrong,” said Morning Consult chief economist John Leer. “With falling gas prices, the economic outlook for the third quarter is starting to look better.”
Leisure and hospitality once again led the way for job growth with an increase of 96,000 jobs. Within that area, restaurants and bars count for 74,000 new payrolls. Employment in the sector is still about 1.2 million payrolls below pre-crisis levels, but the past several months suggest such businesses will continue to add jobs at the fastest rate.
Professional and business services followed by an 89,000-payroll profit. Health care firms created 70,000 jobs, and the government added 57,000 new payrolls.
Clothing and accessories stores reported the biggest drop in employment, losing 5,200 jobs over the month. Some sectors saw largely unchanged recruitment during the month, and most posted healthy gains.
The July report shows a month-long trend of marginally slowing in job growth. Hiring has been unusually fast throughout 2022 as companies’ healthy demand for workers outpaced hurdles such as Federal Reserve rate hikes and ever-increasing prices. Job opening data for June suggested the demand for labor can be slowBut with the total still above 10 million and the number of available workers nearly doubling, the economy will continue to add payrolls over the near term.
Other measures included in the report were similarly encouraging. Average hourly earnings in July rose $0.15, or 0.5%, to $32.27, beating estimates of 0.3% growth. This increase provides some relief to Americans who are facing the burden of skyrocketing inflation. The problem of inflation has left most workers with negative real wage growth, meaning their wages are not growing fast enough to keep up with rising prices. While the July benefit in itself won’t flip the script, it does indicate that workers are still winning historically large wage benefits.
However, the trend of labor force participation continued in the wrong direction. The rate, which tracks the share of Americans either working or actively looking for work, fell from 62.2% to 62.1%, the second straight decline. With the labor market still extraordinarily tight and some 58 million Americans not in the workforce, it would take a healthy rally in labor supply participation to balance that with the huge demand for companies.
However, the economic background is becoming more difficult. fed 0.75 percent hike in rates in late July, matching the size of its June increase and pushing the federal funds rate to a range of 2.25% to 2.5%. That limit is largely viewed by Fed officials as “neutral,” meaning it neither stimulates nor restricts the economy. This means that borrowing costs are no longer at the low levels that have supported companies over the past two years.
Strong July data leaves the door open for the Fed to raise rates at an aggressive pace. The central bank has targeted the labor market as an area where it can cool demand, and officials have repeatedly pointed to wage growth as an area of potential concern. Higher-than-expected increases in wages and overall payrolls indicate that the Fed will continue raising rates higher in hopes of balancing the labor market.
“Not only is the labor market undoubtedly still tight, but wage growth is uncomfortably strong,” said Seema Shah, chief global strategist at Principal Global Investors. “The Fed has its work cut out for it to create enough slack that could ease price pressure.”