The US labor market has repeatedly defied skeptics this year. Economists expected just 250,000 new jobs this month.
There are, of course, political implications in the figures released Friday: Rising prices and the risk of recession are set to weigh on voters in November’s midterm elections as President Joe Biden’s Democrats seek to maintain control. of Congress.
The economic backdrop is troubling: gross domestic product – the broadest measure of economic output – fell in the first and second quarters; Consecutive declines in GDP is one definition of a recession. And inflation is at its highest level in 40 years.
The resilience of the current labor market, particularly the low unemployment rate, is the main reason most economists don’t believe a downturn has started yet, despite growing fears that a slowdown not happen. The story is not entirely reassuring: the unemployment rate was even lower – 3.5% – when an 11-month recession began in December 1969.
The recession is not just an American problem.
In the United Kingdom, the Bank of England predicted on Thursday that the world’s fifth largest economy would fall into recession by the end of the year.
Russia’s war in Ukraine has clouded the outlook across Europe. The conflict has scarred energy supplies and driven up prices. European countries are bracing for the possibility that Moscow will continue to reduce — and possibly completely cut off — flows of natural gas, used to fuel factories, generate electricity and keep homes warm in winter.
If Europeans cannot store enough gas for the cold months, rationing may be demanded by industry.
Economies have been on a frantic race since COVID-19 hit in early 2020.
The pandemic has brought economic life to a virtual standstill, with businesses closing and consumers staying home. In March and April 2020, US employers cut 22 million jobs and the economy plunged into a deep two-month recession.
But massive government aid — and the Federal Reserve’s decision to cut interest rates and pump money into financial markets — fueled a surprisingly quick recovery. Caught off guard by the strength of the rebound, factories, stores, ports and freight yards were swamped with orders and rushed to bring back workers they furloughed when COVID hit.
The result has been labor and supply shortages, delayed deliveries and rising prices. In the United States, inflation has been rising steadily for more than a year. In June, consumer prices jumped 9.1% from a year earlier, the biggest increase since 1981.
The Fed underestimated the resurgence of inflation, thinking prices were rising due to temporary supply chain bottlenecks. He has since recognized that the current wave of inflation is not, as it was once called, “transitional”.
Now the central bank is reacting aggressively. It has raised its benchmark short-term interest rate four times this year, with more rate hikes to come.
Higher borrowing costs weigh heavily. Rising mortgage rates, for example, cooled a hot housing market. Sales of previously occupied homes fell in June for the fifth consecutive month.
Property companies – including lending firm LoanDepot and online property broker Redfin – have started laying off workers.
The labor market is showing other signs of instability.
The Labor Department reported Tuesday that employers posted 10.7 million job openings in June — a healthy number but the lowest since September.
And the four-week average number of Americans filing for unemployment benefits — an indicator of layoffs that smooths week-to-week fluctuations — rose last week to its highest level since November, although figures may have been exaggerated by seasonal factors.
Friday’s jobs report comes at a critical time for President Biden, who has argued the economy is only slowing rather than heading into a recession. Inflation persisted in public support for Biden, but the administration pointed to the 3.6% unemployment rate and strong job gains as signs of a healthy economy.
White House press secretary Karine Jean-Pierre said the administration expects the pace of hiring to continue to decline in the coming months as the unemployment rate is already near its lows. historic lows and fewer potential workers are available.
A slower pace of hiring and reduced levels of wage growth could also suggest inflationary pressures are easing, but the White House is trying to convince the American public that less growth is positive at a time when Republican lawmakers say a recession has already started; they cite the fall in GDP in the first half of the year.
“We expect it to be closer to 150,000 jobs per month,” Jean-Pierre said during Thursday’s briefing. “This kind of job growth is consistent with the lower level of unemployment numbers we’ve seen.”
Economist House in Wells Fargo expects employers to continue adding jobs for a few months. But rising interest rates, she said, will gradually stifle economic growth.
“We’re actually looking for an outright decline in hiring in the first quarter, maybe the second quarter of next year,” she said. “As monetary policy continues to tighten, this will have an effect on general business conditions and therefore on the demand for workers.
“We expect the US economy to enter a recession, probably early in the year.”