The U.S. economy saw an addition of 187,000 jobs in July, which indicates a healthy gain. The unemployment rate also saw a slight decline, reaching 3.5 percent, as the Bureau of Labor Statistics reported on Friday. The previous two months have had the worst employment growth since December 2020, combined with June’s revised 185,000 jobs gain. However, despite this cooling in job growth, the overall performance is still considered solid and positive for the economy.
US economy adds more jobs
The U.S. economy and job market have surprised many as they have defied predictions of an imminent recession. Economists increasingly believe that the Federal Reserve’s efforts to combat inflation can result in a rare “soft landing.” This approach involves raising interest rates to a level that effectively curbs rising prices without pushing the world’s largest economy into a recession. The positive sentiment also extends to consumers, with the Conference Board reporting the highest consumer confidence index in two years.
However, it’s essential to note that the Federal Reserve’s rate hikes, which have totaled eleven since March 2022, have had an impact. While hiring remains strong by historical standards, averaging 278,000 jobs per month this year, it has declined significantly from the record levels of 606,000 jobs per month in 2021 and 399,000 jobs per month last year. These record numbers were part of the impressive economic rebound from the brief but severe pandemic recession in 2020.
Additional evidence indicates that the job market, while still in good shape, is experiencing a slowdown. The Labor Department report on Tuesday highlighted that there were less than 9.6 million job opportunities in June, which was the lowest number in more than two years. However, it is worth noting that these figures are still exceptionally strong, considering that monthly job openings had never exceeded 8 million before 2021. Moreover, the number of people quitting their jobs, often seen as a sign of confidence in finding better opportunities elsewhere, also decreased in June but remained higher than pre-pandemic levels.
The job market is making a recovery
The Federal Reserve aims to moderate the pace of hiring to prevent strong demand for workers from driving up wages and leading companies to raise prices to compensate for higher labor costs. One encouraging sign, from the perspective of the Fed, is that more Americans are rejoining the job market, making it easier for employers to find and retain workers without having to offer significant salary hikes. During the pandemic, many older workers chose to retire early, while others faced challenges due to health concerns and difficulties securing childcare. As a result, the labor force participation rate, representing the percentage of Americans either working or actively seeking work, dropped to 60.1% in April 2020, the lowest level since 1973.
Since then, the participation rate has recovered, although it has not reached pre-pandemic levels. The return to work has been seen more for those in their prime working years, aged 25 to 54, with a participation rate reaching 83.5% in June, the highest since 2002. Among prime-age women, 77.8% were working or looking for work in June, the highest proportion recorded in government data dating back to 1948.
The increase in immigration as COVID-19 border restrictions were lifted has also contributed to a larger pool of available workers. As a result of a cooling labor market, wage pressures have eased somewhat, although they remain relatively high for the comfort of the Federal Reserve. The average hourly pay in July is projected to be up 4.2% from the previous year, slightly decelerating from the 4.4% year-over-year increase observed in June.
The overall inflation rate has been on a steady decline. In June 2022, consumer prices experienced a significant increase of 9.1% compared to the previous year, marking the largest year-over-year jump in four decades. However, inflation has gradually decreased each month since then, reaching 3% in June of the current year. Although this rate is still above the Federal Reserve’s target of 2%, decreasing inflation and sustained economic strength alleviates concerns that the United States may be headed for a recession later in 2023 or 2024.
Economists like Bill Adams, the chief economist at Comerica Bank in Dallas, are positive that the economy can recover and align with the Federal Reserve’s target without experiencing a significant downturn. This positive outlook suggests that the current economic situation is conducive to a healthier and more stable growth trajectory, which reduces the likelihood of an imminent recession.