Surprise US job growth pushes employment back to pre-Covid levels
The U.S. job market grew faster than expected in July, pushing employment back to pre-pandemic levels, a move welcomed by President Joe Biden as he faces tough midterm elections — but fueling worries about sky-high inflation.
Even the White House last month predicted job gains would slow, which Biden had said was part of a natural decline after the world’s largest economy’s rapid recovery from the pandemic downturn.
Instead, U.S. job growth picked up in July, with the economy adding a surprising 528,000 positions, more than twice what economists had expected, according to official data released Friday. This brought the unemployment rate back to the pre-pandemic level of FebruACHI 2020.
“Today, the unemployment rate is the lowest it has been in more than 50 years: 3.5%,” Biden said in a statement.
“More people are working than at any time in American history … There is still much work to be done, but today’s jobs report shows that we are making significant progress for working families.”
On top of last month’s increase in hiring, the Labor Department report showed job gains in June added a total of 28,000 positions, the same as in May, with preliminACHI data showing.
Meanwhile, a closely watched report showed wages rose in July — with average hourly earnings up 15 cents from June — fueling concerns about a potential wage-price spiral. Over the past 12 months, average hourly earnings have increased by 5.2 percent.
That’s good for families struggling to make ends meet as they face rising prices for groceries and gas, but could prompt companies to raise prices even further.
With inflation rising to nine percent, the lowest in more than 40 years, the Federal Reserve has been aggressively raising interest rates to cool the economy, and economists say a third straight three-quarter point hike is likely in September.
After recent data showed GDP shrank for a second straight quarter – prompting many to say the economy is in recession – US stocks buoyed investors’ confidence that the central bank could scale back its inflation-fighting efforts.
But Wall Street fell sharply following the jobs report amid concerns about impending rate hikes.
With the latest increase, total nonfarm employment has returned to its pre-pandemic level, with hiring rising by 430,000 over the past three months.
KPMG economist Diane Swank’s initial reaction: “Wow.”
“This report pushes the Fed toward a 75 basis point move again in September,” he said on Twitter.
The central bank has quadrupled the benchmark lending rate from zero at the start of the year, and has vowed to continue its war on inflation.
And central bankers this week made it clear that investor optimism about a possible tapering was misplaced.
“Recession is less of a concern right now. Inflation is more of a concern,” Harvard economist Jason Furman tweeted. “The Fed may need to do more.”
The central bank will receive two more employment reports and several inflation reports before its next policy meeting in mid-September.
While employers have struggled for months to find workers — nearly two open positions for every unemployed person in employment — job gains have continued.
Hiring was strong in leisure and hospitality and health care, which each added 96,000 or more in July, while manufacturing and construction gained at least 32,000.
Construction, particularly builders, are under pressure as they struggle to meet high demand for housing, but employment in the sector has now returned to its pre-pandemic levels, the report said.
But there were also signs of strains. The number of people working part-time for economic reasons fell sharply in June and rebounded in July. And a growing number of workers hold second jobs, including 403,000 in two full-time positions.
People’s share of the labor force is stuck at around 62 percent, and some economists point to a long-term Covid impact that is marginalizing potential workers.
Kathryn Bach of the Brookings Institution said she believes up to four million people could be put out of work due to the effects of Covid-19.
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