US labour market defies recession fears
US job growth unexpectedly accelerated in July, lifting the level of employment above its pre-pandemic level and pouring cold water on fears the economy was in recession.
The Labor Department's closely watched employment report on Friday also showed employers continuing to raise wages at a strong clip and generally maintaining longer hours for workers. The sustained labor market strength could give the Federal Reserve the latitude to keep aggressively hiking interest rates.
"If the US economy is in a recession, no one seems to have told employers," said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina. "We suspect this data will give the Fed the confidence it needs to push ahead aggressively with its fight against inflation."
Nonfarm payrolls increased by 528,000 jobs last month, the largest gain since February, the survey of establishments showed. Data for June was revised higher to show 398,000 jobs created instead of the previously reported 372,000. July marked the 19th straight month of payrolls expansion, and blew off economists' expectations for a gain of only 250,000 jobs.
Estimates in the Reuters survey for the number of jobs gained ranged from a low of 75,000 to a high of 325,000.
The labor market has now recouped all the jobs lost during the Covid-19 pandemic, though government employment remains about 597,000 jobs in the hole. Overall employment is now 32,000 jobs higher than in February 2020.
It took just under 2-1/2 years to recover all the jobs compared to at least six years after the 2007-2009 Great Recession.
The Fed last week raised its policy rate by three-quarters of a percentage point and officials have pledged more hikes are coming as the US central bank tries to rein in inflation. Annual consumer prices are rising at their fastest pace in four decades. Since March, the Fed has lifted its benchmark overnight interest rate from near zero to a range of 2.25 per cent to 2.50 per cent.
"The Fed is looking increasingly likely to be able to maintain its current trajectory without constantly looking over its shoulder, making it the envy of world economies who are all enduring the same knife-edge balancing act at the moment," said James Bentley, a company director at Financial Markets Online.
US gross domestic product declined in the first and second quarters, meeting the standard definition of a recession. The economy's 1.3 per cent contraction in the first half of the year was mostly because of big swings in inventories and the trade deficit tied to snarled global supply chains.
The National Bureau of Economic Research, the official arbiter of recessions in the United States, defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."
But even with July's robust jobs gains, some cracks are forming in the labor market. Businesses in the interest-rate-sensitive housing, finance, technology and retail sectors are laying off workers. Still, with 10.7 million job openings at the end of June and 1.8 openings for every unemployed person, a sharp deceleration in payrolls growth is unlikely this year.
Stocks on Wall Street were trading lower. The dollar rallied against a basket of currencies. US Treasury prices fell.
The broad job gains last month were led by the leisure and hospitality industry, which added 96,000 positions, most of them at restaurants and bars. But leisure and hospitality employment remain down by 1.2 million from its February 2020 level.