By Denny Gulino
WASHINGTON (MaceNews) – Confounding the forecasters, the July jobs market exploded with new hiring, adding 528,000 payrolls slots, lowering the unemployment rate to 3.5% and pitting market pessimists against their opposites who see inflation having peaked.
U.S. stocks futures sagged, benchmark interest rates shot up a few basis points and the White House rejoiced at Friday’s unexpected news from the Bureau of Labor Statistics.
The markets’ immediate negative reaction reflected the embedded fears of exacerbated Federal Reserve tightening. But for those who are sniffing out better news to come from next Wednesday’s Consumer Price Index, the latest jobs report posed the possibility of a paradigm shift in the consensus economic outlook. Later in the morning the Dow industrials improved to bounce around breakeven.
The jobs report showed nominal wage gains holding up, with again a 5.2% increase over a year, not enough to keep up with a 9.2% consumer inflation rate but aggressive nonetheless.
It also showed the labor force shrinking somewhat and the labor participation rate slipping a tenth, a support for continuing outsized wage gains, while total unemployment diminished, showing jobs are readily available for those who want one.
The previous two months were revised upward by a modest amount, a net 28,000 addition to the year’s payrolls total, adding to July’s positivity.
From a political perspective, the latest jobs report burnished President Biden’s suddenly improved scorecard, already benefiting in the week from the prospects for passage, perhaps this weekend in the Senate, of his Inflation Reduction Act’s massive reconciliation package.
With job creation averaging 437,000 over three months, recession fears seemed less supported than ever after the day’s jobs tally, even as the Fed just now begins to move the federal funds rate into restrictive territory.
The economy is creating 6 million jobs a year, three times faster than what used to be considered a healthy year, leaning against the negative bias in public sentiment and the best jobs performance in half a century.
Scary Fed “forward guidance,” now abandoned, sent credit markets into an anticipatory slow boil while headlines for months have told of a determined Fed slamming inflation with a sledgehammer. In fact, it’s been only a Fed feather duster up to now as the central bank has only removed accommodation, moving toward but not yet arriving at a formal tightening stance.
Despite the shift to services spending as pandemic anxiety faded to a large extent, July manufacturing employment rose a seasonally adjusted 30,000, to a level 41,000 above February 2020.
The factory workweek held above 40 hours, at 40.4, and factory overtime increased a tenth of an hour to 3.3 hours.
Construction, despite lagging residential sales in the face of peaking mortgage rates which only this week dropped below 5%, added 32,000 July jobs, with the employment level 82,000 above what it was two and a half years ago.
The category of jobs most closely associated with an expanding economy, for professional and business services, jumped considerably, up 89,000. That’s a massive 986,000 higher than the previous peak before the pandemic took hold and another indicator suggesting a recession is decidedly not around the corner or down the street.
Yet the standout category was leisure and hospitality, adding 96,000 jobs in the month, still catching up to its pre-pandemic level that’s 7.1% away.
The BLS said private sector employment is 629,000 higher than the 29 months ago when the pandemic was taking hold, having created 22 million non-farm payrolls jobs since reaching a low in April 2020. The WHO declared Covid-19 a pandemic in March 2020.
From the White House, President Biden, still isolating with rebound Covid, issued a statement pointing out the 3.5% unemployment rate is the “lowest it’s been in more than 50 years.” He continued, “There’s more work to do, but today’s jobs report shows we are making significant progress for working families.”
Health care employment was another major gainer, adding 70,000 jobs. Yet that category has still not caught up with pre-pandemic levels, implying more large gains to come.
With consumption reputedly resilient, the retail employment picture has nevertheless been lackluster. That category has shown no net change since March though it was up 22,000 in the July report.
All in all, the report’s gains permeated almost every segment of the labor market except for wholesale trade, with even the oil patch adding 7,000 jobs.
The broad measure of unemployment, dubbed “U-6,” which includes those considered only marginally attached to the labor force, showed a 6.7% unemployment rate, the same as in June but far below a year earlier, when it was 9.2%.
For the community of analysts and forecasters, the July jobs report seemed to suggest an era underway of peak cluelessness, with forecasts for July jobs not even half of what actually occurred. Extrapolating their guidance to later this year and to next year, when even current assessments are so mistaken, seemed to be a more futile exercise than usual as the Fed reevaluates its policy at six-week intervals.
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Contact this reporter: denny@macenews.com
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