WASHINGTON (AP) — A strong hiring report for June has allayed fears that the U.S. economy may be on the brink of recession — and highlighted the resilience of the country’s job market.
But figures released by the government on Friday also highlighted the sharp divide between the healthy labor market and the rest of the economy: Inflation has risen to 40-year highs, consumers are increasingly gloomy, home sales and manufacturing are faltering and the economy might actually have shrunk in the last six months.
The contrasting picture suggests an economy at a crossroads. Strong hiring and wage growth could help avert a recession. Or, conversely, painful inflation and steadily higher lending rates, controlled by the US Federal Reserve, could discourage consumer and corporate spending and weaken growth, eventually prompting companies to hire less or even cut jobs.
For now, at least, the latest employment data from the Department of Labor shows many companies are still looking to hire employees. Employers added 372k 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 over the past month amid broader signs of economic weakness.
The unemployment rate stayed at 3.6% for the fourth straight month, hitting a near 50-year low set before the pandemic broke out in early 2020.
“Despite all the doom and gloom that’s been sweeping the markets right now, companies themselves still seem pretty optimistic about their own progress,” said James Knightley, chief economist at bank ING. “It kind of dampens the near-term fear that we’re headed for an imminent recession.”
Still, there are many uncertainties clouding the outlook for the economy. For the first time this year, consumers cut their inflation-adjusted spending in May. Home sales are down 9% year over year. And the Federal Reserve is raising interest rates at the fastest pace in three decades, aiming to cool consumer and business spending and curb inflation, but increasing the risk that it will eventually cause a recession.
“The economic tea leaves are harder to read when the economy is at a turning point,” said Daniel Zhao, senior economist at employment website Glassdoor. “In other words, turning points are only apparent in hindsight.”
Jason Furman, a Harvard economist who was a senior economic adviser to President Barack Obama, said the gap between healthy jobs data and the broader economic picture is the widest in 70 years. In the first half of this year, employers added 2.7 million jobs, although other data suggests the overall economy shrank over the period.
“Everything about the economy over the last 2 1/2 years,” Furman said, “has been, and continues to be, extremely unusual.”
Furman cautioned that economic growth data could be revised in the coming months to show that the economy was actually growing, at least slightly, earlier this year. Or many employers could be catching up on hiring after months of struggling to find workers and could soon be reducing staffing levels as the economy shrinks.
For the time being, numerous sectors of the economy recorded strong employment growth 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 mostly including restaurants, hotels and entertainment jobs added 67,000.
John Schall, the owner of a Boston-based Tex-Mex restaurant chain called El Jefe’s Taqueria, is enjoying strong sales growth and says he’s bullish on his business. Next week he plans to open his eighth restaurant in Pittsburgh. Schall has hired five managers there and has 30 hourly workers.
Having opened six stores in the chaotic two years since the pandemic broke out, he’s relatively unfazed by inflation and supply chain issues.
“Everything is a problem, but overall I couldn’t be more excited about where we are and where we’re going,” said Schall.
Rising prices have eroded his profits, he said, but he believes inflation will prove temporary, so he’s not planning price increases beyond one he pushed through nine months ago.
However, some companies are announcing layoffs or have suspended hiring. In particular, several large retailers, including Walmart and Amazon, have said they have been hiring too many employees during the pandemic, with Walmart reducing its headcount through attrition. Retailers shed an average of 9,000 jobs per month in the April-June quarter after adding 70,000 jobs per month from January to March. This trend may mean that stores are anticipating slower spending.
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 essentials like moisturizers and cleansers. Most don’t take additional products like serums, she said, and are reluctant to try new products.
She is not planning any downsizing for the time being. But that could change if conditions worsen.
The Fed may take June’s strong job gains as evidence that the rapid pace of hiring is fueling inflation as companies raise wages to attract workers and then raise prices to cover their higher labor costs.
But Friday’s jobs report indicated that such a “wage-price spiral” is not yet taking place, an encouraging sign in the central bank’s inflationary war. The average hourly wage rose 5.1% year-on-year in June, after a peak of 5.6% in March.
When the government reports last month’s inflation next week, the figure is likely to remain high and could even top the 8.6% yoy reading in May. However, many economists believe that falling prices for oil, gasoline and other commodities such as wheat and timber will slow headline inflation in the coming months.
Still, inflation remains a pressing concern for most Americans, frustrating President Joe Biden’s efforts to gain credit for a historically rapid jobs recovery from the pandemic recession. The nation has now regained all private sector jobs lost to the pandemic downturn, just over two years after the outbreak. In contrast, it took almost five years to regain all the jobs lost in the Great Recession of 2008-2009.
Fed Chair Jerome Powell has expressed hope that the economy will continue to expand even as the central bank increases borrowing costs. However, Powell has also acknowledged that foreign factors such as Russia’s invasion of Ukraine, which has led to increased gas and food prices, will make avoiding a downturn difficult.
Last month he conceded that a recession “is not our intended outcome but certainly a possibility.”
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AP business writer Anne D’Innocenzio contributed to this story from New York.