Robust June jobs report showing some clouds, too
Solid hiring and high inflation paint a mixed picture for the future
A strong hiring report for June has assuaged fears that the U.S. economy might be on the cusp of a recession, and highlighted the resilience of the nation's job market.
Yet the figures the government released Friday also spotlighted the sharp divide between the healthy labor market and the rest of the economy: Inflation has soared to 40-year highs, consumers are increasingly gloomy, home sales and manufacturing are weakening and the economy might actually have shrunk for the past six months.
The contrasting picture suggests an economy at a crossroads. Strong hiring and wage growth could help stave off recession. Or, conversely, painful inflation and steadily higher borrowing rates engineered by the Federal Reserve could discourage consumer and business spending and weaken growth, eventually leading businesses to scale back hiring or even cut jobs.
For now, at least, the latest jobs data from the Labor Department shows that many businesses still want to keep hiring. Employers added 372,000 jobs in June, a surprisingly robust gain and in line with the pace of the previous two months. Economists had expected job growth to slow sharply last month given the broader signs of economic weakness.
The unemployment rate remained 3.6% for a fourth consecutive month, matching a near50-year low that was reached before the pandemic struck in early 2020.
“For all the doom and gloom that's in the markets right now, companies themselves still seem pretty upbeat on their own progress,” said James Knightley, chief economist at ING. “It sort of dampens the near-term fear that we're heading into an impending recession.”
Still, there's plenty of uncertainty clouding the economy's outlook. Consumers cut back on their spending, when adjusted for inflation, in May for the first time this year. Home sales have fallen 9% from a year ago. And the Federal Reserve is raising its key interest rate at the fastest pace in three decades, with the goal of cooling consumer and business spending and curbing inflation but heightening the risk that it will eventually cause a recession.
“The economic tea leaves get harder to read when the economy is at a turning point,” said Daniel Zhao, senior economist at employment website Glassdoor. “Or, put another way, turning points are only obvious in hindsight.”
Jason Furman, a Harvard economist who was a top economic adviser to President Barack Obama, said the gap between the healthy jobs data and the overall economic picture is the widest it's been in 70 years. In the first half this year, employers added 2.7 million jobs, even while other data suggests that the overall economy contracted during that time.
“Everything about the economy over the last 2 ½ years,” Furman said, “has been extremely unusual, and it continues to be.”
Furman noted that the data on economic growth might be revised in the coming months to show that the economy actually did expand earlier this year, at least slightly. Or, many employers might be playing catch-up on hiring after having struggled to find workers for months and may soon scale back staffing as the economy contracts.
For now, numerous sectors of the economy posted strong job gains in June. Health care added 78,000, transportation and warehousing 36,000 and professional services — a category that includes accounting, engineering, and legal services — gained 74,000. And a sector that includes mainly restaurants, hotels and entertainment jobs added 67,000.