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Employers added 528,000 jobs in July, shattering expectations

The labor market has been a pillar of strength for an economy dealing with surging inflation

Jayln Martin and Dan Villegas stock items for a holiday sale in November 2019 at a Walmart in Las Vegas. (John Locher/AP)
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The hot labor market strengthened more than expected last month, as employers added 528,000 jobs, a stunning figure that reflects an economy well recovered from the pandemic, quelling fears that a recession could be imminent.

The unemployment rate edged down to 3.5 percent, according to the Bureau of Labor Statistics, reaching its lowest point since February 2020, tying for the lowest rate since 1969. However, that figure includes some workers who left the labor force, an ongoing pandemic trend.

The job market has more than recovered its pandemic losses, building confidence that a red-hot labor market can persevere, even as other parts of the economy sour. The momentum has afforded workers historic wage gains and more leverage at their jobs.

The July jobs report caps off a staggering 19 months worth of gains, notching a big political victory for President Biden and Democrats running for office this fall. Growing dissatisfaction about the economy has weighed on Biden’s popularity, especially from within the Democratic Party. However, job growth remains a bright spot, with the economy picking up, on average, more than half a million jobs each month of Biden’s presidency.

“Today, we received another outstanding jobs report,” Biden said Friday at a news briefing. “That’s the fastest job growth in history today. We also matched the lowest unemployment rate in America in the last 50 years, 3.5 percent. What we’re also seeing is something that just a few years ago many experts said was literally impossible.”

On Aug. 5 President Biden touted the addition of 528,000 jobs in July despite warning signs of a possible economic downturn. (Video: The Washington Post, Photo: AP Photo/Evan Vucci, Pool/The Washington Post)

Republicans have been quick to criticize Democrats about inflation, but few GOP lawmakers commented on the jobs numbers Friday.

“Thanks in part to Republican governors removing the Biden work barrier that pays the jobless more to stay home than to work, the July jobs report finally met expectations,” Rep. Kevin Brady (R-Tex.) said. “The labor force participation rate still hasn’t improved in 2021, which is a red flag for tepid growth ahead.”

Huge job pickups were seen across a broad spectrum of categories, as leisure and hospitality led the way with 96,000 jobs added. Demand for consumer services has continued to be strong all summer, despite higher prices on groceries, gasoline and other basic needs.

Also, professional and business services added 89,000 jobs, with gains in architectural and engineering services, technical consulting, and scientific research and development. Health care picked up 70,000 jobs, primarily in health-care services and hospitals and nursing facilities. Jobs also grew in government, construction, manufacturing and mining.

“This report is a fantastic sign for the labor market,” said Julia Pollak, labor economist at ZipRecruiter. “There’s plenty of indication that inflation is coming down. Gas prices are coming down. Inventory levels are rising. It looks like we can manage to get inflation under control without halting job market recovery. There’s reason to think the labor market can weather the storm.”

Even the June jobs report was revised upward to 398,000, up from 372,000, showing the continued momentum for growth this summer.

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Economists and White House officials had predicted a slowdown in job growth last month due to economic indicators that raised alarms. Inflation hit 40-year highs and the economy shrank over the past six months on the year, typically a benchmark for recessions. The financial markets have also lost trillions of dollars in value this year, and one measure of consumer sentiment hit a record low in June. Meanwhile, the war in Ukraine has exacerbated the pandemic-era supply chain crisis and inflation around the world.

The Federal Reserve has raised interest rates this year to combat inflation, which has slowed some parts of the economy, particularly housing, and can help slow job creation and wage growth.

Dour job growth predictions for last month also drew on reports of widespread layoffs and hiring freezes in tech, which appear to have had little impact on overall job growth.

Indeed, the surprisingly hot jobs report renewed some fears that the Federal Reserve will need to more aggressively raise interest rates to cool the economy down, prompting financial markets to fall in early trading Friday, although they closed mixed.

But the economy is showing signs that the labor market can remain robust and continue to recover even as the Fed raises interest rates to combat inflation.

“It’s a strong report,” Labor Secretary Marty Walsh said. “If we look back to the day before Biden took office, 10 million people were out of work. All those jobs have been recovered. Some sectors more than that. The buzzword we have right now is ‘recession’ but we have to keep in focus that what we’re living through economically is very different than we’ve experienced in the past.”

Wage growth, though stronger than the Fed would like to see, has not kept up with inflation. The lowest income households continue to struggle to put food on the table and pay for gas and housing. Average hourly earnings increased by 0.5 percent this month, to $32.27 an hour, continuing an upward trend from earlier this year.

“The most concerning thing in this report is that we didn’t see the expected moderation in wage growth,” said Karen Dynan, an economist at Harvard University and former chief economist at the Treasury Department. “To be clear, strong wage growth does benefit workers in the short run. But the current pace of wage growth is not consistent with low inflation over the longer run.”

Declining workforce participation is another area of concern for economists. Last month, participation edged down to 62.1 percent from 62.2 percent, increasing concerns that some workers are still unable to join the workforce.

“Some of the benefits of jobs creation aren’t being felt, because people aren’t able to get in to work,” said Nick Bunker, economic research director at Indeed’s Hiring Lab. “It could be a lack of child care and covid, people out sick from covid — and the long-term effects of covid.”

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The number of Americans quitting their jobs remains high, although lower than its peak earlier this year in a phenomenon known as the “Great Resignation.” The hot labor market has allowed workers to switch jobs and demand higher wages and better conditions, particularly in the leisure and hospitality sectors. While the trend is softening, the quits rate remains at a 20-year high.

Elenna Geffrard, a case manager in developmental human services, recently gave her notice to her employer in New York because she found a better-paying job doing the same thing elsewhere with a lighter caseload.

“I’m quitting because I’m wiped out, and they gave us more cases to take care of,” Geffrard said. “I have 40 cases to monitor. In my new job, I’m getting paid more and only have 20 cases.”

It wasn’t easy to find a new job, Geffrard said. She applied to roughly 40 over the past year before she got her offer last week.

Job openings slowed in June compared with previous months, with notable declines in the retail and wholesale trade, as consumer demand has shifted away from goods toward services such as dining out, going to the movies and travel.

“There’s no doubt that some employers have just come off of a time when labor markets were unusually tight, so they may be reluctant to lay people off as they would have before this period of labor shortages,” said Erica Groshen, an economics adviser at Cornell University and the commissioner of the Bureau of Labor Statistics from 2013 to 2017.

Some economists say that the media has been giving too much weight to the importance of recent layoffs concentrated in a few sectors to the health of the overall job market.

“Layoffs are very low right now,” said Daniel Zhao, lead economist at Glassdoor. “We’re relying too much on anecdotes, and a tight labor market means many workers are easily able to find new opportunities.”

Geneva Tucker, a research analyst in Kansas City, Kan., was laid off in May by the Kansas Department of Health and Environment because of budget cuts. Tucker has since applied to roughly 200 research jobs, with no luck.

“Initially I was looking for similar work, but it hasn’t been an easy process,” said Tucker, who has a degree in microbiology. “At this point, I’m just trying to apply to any jobs that my experience is relevant to that can pay a decent amount.”

Two months out of work, she is just now getting unemployment benefits and barely scraping by. She has even cut back on staple groceries.

“It’s a real struggle to make ends meet at all,” Tucker said. “When gas is $5 a gallon, it’s really hard to drive to job interviews because I can’t afford gas. It seems extremely unfair to have all this experience and my degree and get to this point where I’m struggling day-to-day.”

Roaring job growth could offer an encouraging sign that the Fed hasn’t gone too far in cooling off the economy, and that it might be able to slow the economy without spelling disaster for the labor market.

To get control of the highest inflation in 40 years, the Fed has raised interest rates four times this year, including with two back-to-back hikes of three-quarters of a percentage point. Fed leaders routinely say that they will keep raising rates until they see clear and convincing evidence, through months of data, that inflation is turning around. The risk, though, is that they move so aggressively that businesses freeze hiring or issue widespread layoffs that leads to a spike in unemployment.

Yet the latest gangbuster jobs data seemed to dampen those fears, at least for now.

“The Fed has to worry less that their actions are causing a precipitous slowdown and a potential recession,” said Skanda Amarnath, executive director of Employ America, a left-leaning think tank that advocates for the Fed to let the economy run hot. “But ultimately, it’s the inflation data over the next two prints, before the September policy meeting.”

The Fed does not make a rate increase decision in August, and it’s too soon to know how far Fed officials will go at their policy meeting next month. Just last week, Fed Chair Jerome H. Powell noted that more data would be coming in to shape officials’ understanding of the economy.

Betsey Stevenson, an economist at the University of Michigan and a member of the Council of Economic Advisers during the Obama administration, said that it would be a mistake to assume that the only way for the Fed to cool the economy is to cause employers to stop hiring. The overall jobs report underscored that the labor market is still exceptionally tight, Stevenson said, raising hope that the Fed could engineer a “soft landing” that avoids a painful recession or high unemployment.

Still, the jobs report showed more evidence of wage growth — which isn’t a sign of a slowdown. Economists are keeping a close eye for any markers of what’s known as a wage-price spiral, where higher prices precipitate higher wages in an unsustainable cycle that causes even more persistent inflation.

“Are employers fighting over a pool of workers, and the fight is leading them to push up wages?” Stevenson said. “One reason I feel optimistic is that they were able to hire 528,000 people, and that means the pool is continuing to expand. … It would be worse if we were seeing those wage increases and we weren’t seeing the job growth. It’s subtle, but super important.”

Rachel Siegel and Tyler Pager contributed to this report.

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