Job hiring in July decreased slightly to 187,000, leading to a decrease in unemployment rate to 3.5%.
Job hiring in July decreased slightly to 187,000, leading to a decrease in unemployment rate to 3.5%.
American Economy Adds 200,000 Jobs, Unemployment Rate Stays Low
The American economy continues to defy expectations as it generated over 200,000 new jobs for a record-breaking 30 consecutive months. This streak is a testament to the solid hiring that has taken place, raising hopes that the United States can avoid a long-expected recession.
The latest jobs report from the Labor Department is expected to show that employers added exactly 200,000 jobs in the previous month. While this number represents the fewest additions since December 2020, it is still considered a healthy number and a positive sign for the robustness of the U.S. labor market. This is particularly impressive considering the impact of significantly higher interest rates.
Despite speculations of an impending recession, the U.S. economy and job market have repeatedly defied these predictions. Analysts and experts are increasingly confident that inflation fighters at the Federal Reserve can achieve a rare “soft landing.” By raising interest rates just enough to rein in rising prices, they hope to avoid tipping the world’s largest economy into a recession. Consumer confidence is at a two-year high, as evidenced by the Conference Board’s consumer confidence index.
However, the Federal Reserve’s eleven rate hikes since March 2022 have had consequences. Although hiring this year has averaged a strong 278,000 jobs per month, it is significantly down from the record-breaking 606,000 jobs per month in 2021 and the 399,000 jobs per month from the previous year. These numbers reflect the U.S. economy’s recovery from the brief but severe recession caused by the pandemic in 2020.
Moreover, there is evidence that the job market, while still healthy, is losing momentum. In June, job openings fell to their lowest level in over two years, dipping below 9.6 million. However, it is essential to note that these numbers remain unusually robust, as job openings never surpassed 8 million before 2021. Similarly, the number of people quitting their jobs, a sign of their confidence in finding better opportunities elsewhere, fell in June, although it remains above pre-pandemic levels.
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The Federal Reserve aims to witness a cooling off of hiring to curb strong wage increases. A tight labor market drives up wages, which, in turn, can force companies to raise prices to compensate for the higher labor costs. Fortunately, more Americans are rejoining the job market, making it easier for employers to find and retain workers without offering substantial pay increases. The pandemic pushed many older workers into early retirement or kept them sidelined due to health concerns and childcare issues. However, as health worries fade and wages rise, the labor force participation rate is gradually recovering from its 2020 lows.
For prime working-age individuals between 25 and 54 years old, the labor force participation rate reached 83.5% in June, the highest since 2002. Additionally, in June, 77.8% of prime-age women were either working or actively seeking employment, marking the highest share since government records began in 1948. The rebound in immigration, following the lifting of COVID-19 border restrictions, has also contributed to the availability of more workers.
In response to a cooling labor market, wage pressures have eased but remain intense for the Federal Reserve’s comfort. Average hourly pay is expected to have increased by 4.2% in July compared to the previous year, decelerating from a 4.4% year-over-year increase in June.
Although overall inflation has steadily come down since June 2022, where it reached a 40-year high of 9.1% year-on-year, it still remains above the Federal Reserve’s target of 2%. As of June, inflation stood at 3%.
The unlikely combination of falling inflation and continued economic strength has assuaged fears of an impending recession in the United States later this year or in 2024. Analysts like Bill Adams, chief economist at Comerica Bank in Dallas, believe it is “much more plausible that the economy can come back to the Federal Reserve’s target without a serious downturn.”
The consistent addition of jobs and the low unemployment rate paint a positive picture for the American economy. It demonstrates its resilience and ability to weather challenges, defying expectations of a recession. As the U.S. labor market continues to show strength, it instills confidence in consumers, businesses, and economists alike.
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