The post-COVID labor market recovery is like this summer’s weather: SCORCHING.
The government reported that 528,000 jobs were created in July, more than twice the consensus estimate. With positive revisions to the prior two months, the total number of jobs has returned to February 2020 pre-pandemic levels.
The monthly gains were broad-based, though post-pandemic performance has favored some sectors much more so than others in the two-plus years since the labor market bottomed out.
For example, leisure and hospitality is down 1.21 million jobs since February 2020, recouping about 85% of the jobs lost between March and April 2020.
Similarly, government employment is 597,000 lower than its pre-pandemic level. Retail trade, construction and manufacturing employment are above pre-pandemic levels (+208,000, +82,000, +41,000, respectively); while the professional and business service sector has added almost one million more positions (+986,000) than it had in February 2020 and transportation and warehousing has an additional 745,000 jobs than it had before the pandemic hit.
The unemployment rate ticked down to 3.5% in July, matching the pre-pandemic 50-year low, though that is partially due to a slight drop in the participation rate, which remains below its February 2020 value of 63.4%.
While most of the prime age workers (ages 25-54) have returned to the labor force in the same numbers as before COVID, older Americans are not rejoining the labor force in huge numbers and the continued low level of immigration “suggest that participation may not reach the levels hit pre-pandemic,” according to Diane Swonk, Chief Economist at Grant Thornton.
The July report is more important than the report that job openings fell to their lowest level in nine months and makes “a mockery of claims that the economy is on the brink of recession,” according to analysts at Capital Economics. (While the number of openings fell from 11.3 million in May to 10.7 million in June, they remain higher than they were a year ago and have seen a more than 50% increase from before the pandemic.)
“The U.S. labor market remains hot as demand is still elevated and joblessness is low,” says Nick Bunker, director of economic research at Indeed Hiring Lab. He wrote that before the July employment report, noting that “employer demand for workers remains strong.”
Of course, with two quarters of negative GDP growth in 2022, Bunker also understands that recession worries are elevated. For those who are apoplectic about the R-Word, Bunker has a message: “The outlook for economic growth may not be as rosy as it was a few months ago, but there’s no sign of imminent danger in the labor market.”
The sizzling report also means that the Fed is set to keep raising interest rates when the central bank meets in September, November, and December. The stubbornly high Consumer Price Index underscores that inflation should be the Fed’s focus and that the labor market can withstand a slowdown.
The concern is that wage growth might decelerate before prices come down. To fund the gap between income and expenses, many Americans are using excess pandemic savings to supplement income amid the current period of high prices.
Others have already depleted their reserves and have been borrowing to fund the gap. Credit card balances jumped by $46 billion in the second quarter from the first quarter, according to the Federal Reserve Bank of New York – that’s a 13% increase from a year ago, the largest annual increase in more than two decades.
Not surprisingly, card usage is rising the most for younger consumers and those who already have low credit scores.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com.
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