U.S. employers shrugged off high inflation and weakening growth to add 372,000 jobs in June, a surprisingly large gain that will likely prompt the Federal Reserve to continue raising interest rates sharply to cool the economy and slow price increases.
The jobless rate in June remained at 3.6% for a fourth consecutive month, the Labor Department said Friday, matching a nearly 50-year low that had been reached before the pandemic hit in early 2020. .
The strong pace of hiring shows that companies are still keen to recruit staff to meet strong customer demand, a trend that should ease fears that the US economy is on the verge of a slowdown. The persistence of the job market suggests that the economy remains on solid ground, at least for now.
The continued desire of many businesses to hire and grow is a buffer against the likelihood of the economy tipping into recession over the next year. Even if a slowdown does occur, healthy employment and wage growth over the past year could help keep it relatively brief and subdued.
At the same time, consumers are slowing spending with inflation at its highest level in four decades and home sales have fallen as the Fed has raised borrowing costs.
And hiring could weaken in the coming months. The Fed wants job growth to slow, at least modestly, as part of its strenuous efforts to cool the economy and rein in high inflation. The Biden administration has also sought to portray any pullback in hiring as part of a welcome transition to a more sustainable economy that will help keep inflation low.
But the transition to a more sustainable pace of growth and hiring is likely to be bumpy. Already, signs of a slowdown are evident. In May, consumer spending, adjusted for inflation, fell for the first time since December. Existing home sales are down nearly 9% from a year ago.
“Despite all the pessimism in the markets at the moment, companies themselves still seem quite optimistic about their own progress,” said James Knightley, chief economist at ING Bank. “That kind of alleviates the short-term fear that we’re heading into an impending recession.”
Many sectors of the economy posted strong job gains in June. Health care added 78,000 jobs, transportation and warehousing added 36,000, and professional services — a category that includes accounting, engineering and legal services — gained 74,000. And a sector which primarily includes restaurant, hotel and entertainment jobs added 67,000 jobs.
John Schall, owner of Boston-based Tex-Mex restaurant chain El Jefe’s Taqueria, is seeing strong sales growth and says he’s optimistic about his business. He plans to open his eighth restaurant next week in Pittsburgh. Schall has hired five managers there and will add up to 30 hourly workers.
Having opened six stores in the chaotic two years since the start of the pandemic, he is relatively indifferent to inflation and supply chain issues. Its sales increase by 25 to 30% per year.
“All are issues, but overall I couldn’t be more excited about where we are and where we’re going,” Schall said.
Rising prices have eroded his profits, he said, but he believes inflation will be temporary, so he does not expect price increases beyond the one he imposed nine years ago. month. Schall is trying to increase the efficiency of its employees with measures such as purchasing a machine to make most of the slices and dices of the onions, tomatoes and plantains the restaurant uses.
Yet many uncertainties cloud the future trajectory of the economy. Some companies are announcing layoffs or have suspended hiring. In particular, several large retailers, including Walmart and Amazon, said they had overhired during the pandemic, with Walmart reducing its workforce through attrition.
Tesla is cutting about 3.5% of its total workforce. Netflix has laid off around 450 employees after reporting the loss of subscribers for the first time in more than a decade. Online car retailer Carvana and property companies Redfin and Compass also announced job cuts.
Leah Kirpalani, the founder of Shop Good, a “clean beauty” and wellness company with two locations in San Diego, nervously watches her sales. She has noticed that consumers are increasingly focusing on essential products like moisturizers and cleansers. Most don’t buy additional products like serums, she said, and they’re hesitant to try new products.
For the moment, it does not plan to reduce its workforce. But that could change if conditions worsen.
“Until we see a longer downturn,” Kirpalani said, “we will continue to staff appropriately to meet customer expectations.”
Last year’s hiring spree itself contributed to inflation and increased pressure on the Fed to slow borrowing and spending. The central bank has already launched its fastest series of rate hikes since the 1980s. Further large rate increases would make borrowing much more expensive for consumers and businesses and increase the risk of a recession over the next next year.
The Fed may see June’s job gain as evidence that the rapid pace of hiring is further fueling inflation as companies raise wages to attract workers, then raise prices to cover their labor costs. higher work. Many employers are still struggling to fill jobs, especially in the vast service sector of the economy, with Americans traveling, eating out and attending public events with much higher frequency.
When the government releases June inflation figures next week, it will likely be elevated again and could even be higher than the 8.6% year-on-year reading in May. But many economists expect it to decline thereafter.
Wages continued to grow in June, but at a slightly slower pace than at the start of the year. More modest wage gains could help moderate inflation. The average hourly wage rose 5.1% to just over $32 last month, a much larger increase than before the pandemic but not enough to keep pace with inflation. Wage growth is down from a 6% pace at the end of last year.
Currently, there are approximately two job postings for every unemployed person. And the number of people applying for unemployment benefits – an indicator of layoffs and an early indicator of a slowdown – remains well below historical averages, although it has increased recently.
Fed Chairman Jerome H. Powell has held out hope that the economy will continue to grow even as the central bank raises borrowing costs at its fastest rate since the late 1980s. But Powell also recognized that foreign factors, such as Russia’s invasion of Ukraine, which drove up gas and food prices, will make it difficult to avoid a recession.
Last month he conceded that a recession “is not the expected outcome, but it is certainly a possibility”.
Labor market recovery was much faster after the pandemic recession than previous downturns. The economy has now recovered all the private sector jobs lost to the pandemic, just over two years after the recession. It took almost five years to reach this level after the 2008-2009 downturn.