July 2022 jobs report: 528,000
Hiring in July was much better than expected, defying many other signs that the economic recovery is running out of steam, the Bureau of Labor Statistics reported Friday.
Nonfarm payrolls rose 528,000 for the month and the unemployment rate was 3.5%, easily beating Dow Jones estimates of 258,000 and 3.6%, respectively. The unemployment rate is now back to its pre-pandemic level and tied for the lowest since 1969, although the black rate rose 0.2 percentage points to 6%.
Wage growth also jumped, with average hourly earnings jumping 0.5% for the month and 5.2% from the same period a year ago. These figures fuel an inflation picture that has already seen consumer prices rise at their fastest pace since the early 1980s. The Dow Jones estimate called for a monthly gain of 0.3% and an annual increase by 4.9%.
More generally, however, the report showed that the labor market remains strong despite other signs of economic weakness.
“There’s no way to take the other side of it. There’s not a lot of ‘Yeah, but’ other than it’s not positive from a market or Fed perspective” , said Liz Ann Sonders, chief investment strategist at Charles Schwab. “For the economy, this is good news.”
Markets initially reacted negatively to the report as traders anticipated a strong countermeasure from a Federal Reserve seeking to cool the economy and in particular an overheated labor market. However, the Dow Jones Industrial Average ended the day on a positive note, up about 74 points after a choppy day of trading.
Leisure and hospitality led the way in job gains with 96,000, although the industry still had 1.2 million fewer workers than its pre-pandemic level.
Professional and business services followed with 89,000. Health care added 70,000 and government payrolls rose 57,000. Goods-producing industries also posted strong gains, with construction up 32,000 and the manufacture of 30,000.
Retail jobs rose by 22,000, despite repeated warnings from executives at Walmart, Target and elsewhere that consumer demand is changing.
A broader view of unemployment that includes those in part-time jobs for economic reasons as well as discouraged workers not looking for work remained unchanged at 6.7%.
Back to pre-pandemic
Despite pessimistic expectations, July’s gains were the best since February and well ahead of the average increase of 388,000 jobs over the past four months. The BLS statement noted that total nonfarm payroll employment has increased by 22 million since bottoming out in April 2020, when most of the U.S. economy shut down to deal with the Covid pandemic.
Totals for previous months have been revised slightly, May increased by 2,000 to 386,000 and June by 26,000 to 398,000.
“The report throws cold water on a significant cooling in labor demand, but it’s a good sign for the economy and U.S. workers at large,” the Bank economist said. of America, Michael Gapen, in a client note.
The BLS noted that the private sector payroll is now above the level of February 2020, just before the declaration of the pandemic, although government jobs still lag behind.
The unemployment rate fell slightly, the result of both strong job creation and a participation rate which fell by 0.1 percentage point to 62.1%, its level the lowest of the year.
Economists said job creation would begin to slow as the Federal Reserve raises interest rates to cool inflation to its highest level in more than 40 years.
The high number of jobs, coupled with higher-than-expected wages, has led to a change in expectations for the rate hike scheduled for September. Traders are now pricing in a higher probability of a 0.75 percentage point rise for the next meeting, which would be the third consecutive rise of this magnitude.
“On the one hand, it gives the Fed more confidence in its ability to tighten monetary policy without leading to a broad-based increase in unemployment,” said Daniel Zhao, chief economist for job-assessment site Glassdoor. “But it also shows that the labor market is not cooling, or at least not cooling as fast as expected. … At the very least, even if it is a surprise, I think the Fed is still on the good way to continue tightening monetary policy.”
The Fed has raised benchmark interest rates four times this year for a total of 2.25 percentage points. This took the federal funds rate to its highest level since December 2018.
The economy, meanwhile, has cooled considerably.
Gross domestic product, the measure of all goods and services produced, fell in the first two quarters of 2022, meeting a common definition of a recession. White House and Fed officials and most Wall Street economists say the economy is probably not in an official recession, but the downturn has been clear.
“The recession debate at this point is more academic than anything else,” said Sonders, Schwab’s strategist. “You can’t deny that growth has weakened. That’s the only point to talk about two quarters of negative GDP growth.”
The Fed’s rate hikes are aimed at slowing the economy and, therefore, a labor market in which job openings always outnumber available workers by a margin of almost 2 to 1. Bank of America said this week that its own measures of labor market dynamics show a picture of employment that is still strong but slowing, largely due to central bank policy tightening.
The main reason for the pullback is inflation, which has been much stronger and more persistent than most policymakers expected. Prices jumped 9.1% in June from a year ago, the fastest rate since November 1981.
Correction: Prices jumped 9.1% in June from a year ago. An earlier version incorrectly indicated the month.