Many economists believe a recession is inevitable, but employers have not gotten the message: The U.S. jobs market boomed in July.
Despite the Federal Reserve's effort to chill the market through 225 basis points in interest rate increases since March, unemployment dropped in July, jobs increased and wage growth rose at levels not seen in months, the U.S. Bureau of Labor Statistics reported Aug. 5.
The latest jobs report not only defied predictions that a downturn is on the way for the U.S. economy, but also potentially complicates the central bank's mission to rein in runaway inflation.
"This just puts more pressure on the Fed," said Shannon Seery, an economist with Wells Fargo, in an interview.
Missing workers
The unemployment rate fell to 3.5% in July, down from 3.6% in June and its lowest point since February 2020. U.S. unemployment has averaged 3.7% in 2022, compared to 5.4% in 2021. The labor force participation rate — the number of potential workers in the overall population who are in the job market — was at 62.1%, down slightly from 62.2% in June and the rate's lowest point since December 2021.
The participation rate remains well below its pre-pandemic rate of 63.4% despite multiple apparent reasons why it should be improving, including reduced COVID-19 fears, improved childcare options and recession concerns that in normal times might drive more Americans into the workforce.
These, however, are not normal times.
"There are a lot of reasons to think that people would be reengaging with the labor force, but it's really moving in the other direction," said Ben Herzon, a senior U.S. economist with S&P Global Market Intelligence. "It's really a puzzle."
The falling unemployment and labor force participation rates demonstrate that employers continue to struggle to fill open positions. There were 10.7 million job openings at the end of June, nearly two jobs for every unemployed American, according to the latest government data.
"This just further emphasizes the tightness of the labor market," Seery said.
'Not even close'
Nonfarm payrolls jumped by 528,000 in July, the biggest increase since February and more than double the consensus expectation of 250,000, according to Econoday.
"Not even close," Andrew Brenner, head of international fixed income at National Alliance Securities, wrote in an Aug. 5 note on the estimates. "For those that keep saying we are in a recession you are wrong."
More than 23% of the 528,000 jobs added were in education and health services, while leisure and hospitality continued to see strong gains with 96,000 jobs added in July. With those gains, all of the nearly 22 million jobs lost during the first two months of the pandemic have been recovered. In 2022, 3.3 million jobs have been added.
Average hourly earnings rose to $32.27 in July, up 0.47% from June.
The job growth, coupled with continued wage gains and the drop in the unemployment rate, will likely compel Fed officials to be more aggressive with rate hikes in coming months.
"This will keep the Fed foot on the tightening accelerator," Brenner wrote.