WASHINGTON (AP) — A strong jobs report for June calmed concerns that the U.S. economy may be on the brink of recession — and underscored the resilience of the nation’s labor market.
Yet data released by the government on Friday also underscored the stark divide between a healthy labor market and the rest of the economy: Inflation jumped to 40-year highs, consumers are gloomier, home sales and manufacturing are weakening and the economy is actually may have shrunk in 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 persistently higher interest rates on Federal Reserve-engineered loans could discourage consumer and business spending and weaken growth, ultimately causing businesses to cut back on hiring or even cut jobs.
At least for now, 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 strong increase and in line with the pace of the previous two months. Economists had expected job growth to slow sharply last month amid broader signs of economic weakness.
The unemployment rate remained at 3.6% for the fourth month in a row, matching a near 50-year low that was reached before the pandemic hit in early 2020.
“Despite all the doom and gloom that’s in the markets right now, the companies themselves still seem pretty optimistic about their own progress,” said James Knightley, chief economist at ING, a bank. “It kind of reduces the short-term fear that we’re headed for an impending recession.”
Still, there is much uncertainty clouding the economy’s outlook. Consumers cut their inflation-adjusted spending in May for the first time this year. Home sales fell 9% from a year earlier. And the Federal Reserve is raising its key interest rate at the fastest pace in three decades, aiming to cool consumer and business spending and curb inflation, but raising the risk that it will eventually trigger a recession.
“Economic tea leaves become harder to read when the economy is at an inflection point,” said Daniel Zhao, senior economist at employment website Glassdoor. “Or, to put it another way, the turning points are only apparent in retrospect.”
Jason Furman, a Harvard economist who served as President Barack Obama’s chief economic adviser, said the gap between healthy jobs data and the overall economic picture was the largest in 70 years. Employers added 2.7 million jobs in the first half of this year, although other data showed the overall economy shrank during that time.
“Everything in the economy over the last 2 1/2 years,” Fuhrman said, “has been extremely unusual and continues to be.”
Furman noted that the economic growth data could be revised in the coming months to show that the economy actually grew earlier this year, at least slightly. Or many employers may be playing catch-up in hiring after struggling to find workers for months and may soon be downsizing as the economy shrinks.
So far, many sectors of the economy have seen 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 mainly includes restaurants, hotels and entertainment jobs added 67,000.
John Schall, owner of a Boston-based Tex-Mex restaurant chain called El Jefe’s Taqueria, is enjoying strong sales growth and says he’s optimistic about his business. He plans to open his eighth restaurant next week in Pittsburgh. Schall has hired five managers there and will add up to 30 hourly workers.
Having opened six stores in the chaotic two years since the pandemic hit, he is unfazed by inflation and supply chain issues.
“They’re all issues, but overall I couldn’t be more excited about where we are and where we’re going,” Schall said.
Rising prices have eroded his profits, he said, but he believes the inflation will prove temporary, so he doesn’t plan price increases beyond what he imposed nine months ago.
However, some companies are announcing layoffs or have stopped hiring. In particular, several major retailers, including Walmart and Amazon, have said they overhired during the pandemic, with Walmart reducing its workforce due to attrition. Retailers shed an average of 9,000 jobs a month in the April-June quarter after adding 70,000 a month from January to March. This trend could mean stores are expecting slower spending.
Leah Kirpalani, the founder of Shop Good, a “pure beauty” and wellness business with two locations in San Diego, watches her sales nervously. She has noticed that consumers are increasingly focusing on basics like moisturizers and cleansers. Most don’t choose supplemental products like serums, she said, and are hesitant to try new products.
For now, it does not plan to cut staff. But that could change if conditions worsen.
The Federal Reserve may view June’s strong job growth as evidence that the brisk pace of hiring is further fueling inflation as companies raise wages to attract workers and then raise prices to cover their higher labor expenses.
Still, Friday’s jobs report suggested that such a “wage-price spiral” is not yet happening, an encouraging sign in the central bank’s fight against inflation. Average hourly earnings rose 5.1% in June from a year earlier, down from a peak of 5.6% in March.
When the government reports next week on last month’s inflation, the figure is likely to remain high and may even surpass May’s 8.6% annual reading. But many economists believe falling prices for oil, gasoline and other commodities such as wheat and lumber will slow headline inflation in the coming months.
Still, inflation remains a pressing concern for most Americans, frustrating President Joe Biden’s efforts to take credit for a historically rapid job recovery since the pandemic recession. The nation has already recovered all the private sector jobs lost due to the pandemic’s downturn just over two years after it hit. By contrast, it took nearly five years to regain all the jobs lost during the Great Recession of 2008 -2009
Fed Chairman Jerome Powell expressed hope that the economy will continue to expand even as the central bank raises borrowing costs. But Powell also acknowledged that overseas factors, such as Russia’s invasion of Ukraine, which has pushed up gas and food prices, will make it harder to avoid a downturn.
He admitted last month that a recession was “not the outcome we expected, but it’s certainly possible.”
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AP Business Writer Anne D’Innocenzio contributed to this story from New York.
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