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Hot labor market means rate hikes | Company

Jill Schlesinger

The post-COVID labor market recovery is like the weather this summer: scorching hot.

The government said 528,000 jobs were created in July, more than double the consensus estimate. With positive revisions from the previous two months, total employment has returned to pre-pandemic levels in February 2020.

The monthly gains were broad-based, although post-pandemic performance has favored some sectors much more than others in the two-plus years since the labor market bottomed.

For example, leisure and hospitality have lost 1.21 million jobs since February 2020, recovering around 85% of the jobs lost between March and April 2020.

Likewise, public employment is 597,000 below its pre-pandemic level. Employment in retail trade, construction and manufacturing is above pre-pandemic levels (up 208,000, 82,000 and 41,000 jobs, respectively), while the professional and business services sector added nearly one million more jobs (up 986,000) compared to February 2020, and transportation and warehousing has 745,000 more jobs than before the pandemic.

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The unemployment rate fell to 3.5% in July, matching the 50-year low before the pandemic, although this was partly due to a slight drop in the participation rate, which remains below its value of February 2020 by 63.4%.

While most prime-age workers (25-54) have returned to the workforce in the same numbers as before COVID, older Americans are not re-entering the workforce in large numbers, and low levels of immigration “suggest that participation may not reach the levels reached before the pandemic,” according to Diane Swonk, chief economist at Grant Thornton.

The July report is bigger than the report that job vacancies fell to a nine-month low and pokes fun at claims that the economy is on the brink of recession, analysts at Capital Economics say. . (While the number of openings increased from 11.3 million in May to 10.7 million in June, it remains higher than it was a year ago and has seen an increase of more than 50% compared to compared to before the pandemic.)

“The U.S. labor market remains hot as demand is still high and unemployment is low,” says Nick Bunker, director of economic research at Indeed Hiring Lab. He wrote this ahead of the July jobs report, noting that “employer demand for workers remains strong.”

Of course, with two quarters of negative gross domestic product growth in 2022, Bunker also understands that recession fears are running high. For those 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 are no signs of imminent danger on the work market.”

The scorching report also means the Fed is likely 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 top priority and that the labor market can withstand a downturn.

The concern is that wage growth could slow before prices fall. To bridge the gap between income and spending, many Americans are using excess pandemic savings to supplement their income during the current period of high prices.

Others have already exhausted their reserves and borrowed to make up the shortfall. Credit card balances jumped $46 billion in the second quarter from the first quarter, according to the Federal Reserve Bank of New York, up 13% from a year ago, the biggest increase annually in more than two decades.

Not surprisingly, card usage is growing the most among younger consumers and those who already have low credit scores.

Jill Schlesinger, CFP, is a CBS News business analyst. She welcomes comments and questions at askjill@jillonmoney.com.

Jill Schlesinger, CFP, is a CBS News business analyst. She welcomes comments and questions at askjill@jillonmoney.com.

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