June Jobs Take-Away: No Recession Yet
Despite the hand wringing over a coming recession and sentiment levels dropping to all-time lows, the June employment report showed that the U.S. economy is alive and well. There were 372,000 new positions added and the unemployment rate remained at 3.6 percent, a tick above 50-year lows. Total employment gains for the first half of 2022 are strong, they’re more than 20 percent AHEAD of the average gains for an entire year during the 2010s, according to Diane Swonk, the Chief Economist at Grant Thornton.
Despite the gains, job creation is starting to taper off, as the labor market makes a transition from the COVID recovery era into a more historically normal one. After adding an average of more than a half a million jobs a month (539K) in the first quarter, job creation averaged just over 380,000 (382K) in the second quarter and is likely to continue to downshift in the second half of the year.
Additionally, labor market progress varies dramatically from sector to sector. Leisure and hospitality added 67,000 jobs in June, but the industry still has 1.3 million fewer jobs than before the pandemic (February 2020). Professional & Business services increased by 74,000 during the month, improving the post-COVID job gains to a rousing 880,000 jobs since February 2020. Employment in manufacturing increased by 29,000 and has finally returned to its February 2020 level.
Further post-COVID labor market dislocations have also persisted. There are still 5.9 million people counted as unemployed, despite job openings remaining at a robust 11.3 million. That means that there were 1.9 openings per every available worker at the end of May, near record levels. And with inflation at 41-year highs of 8.6 percent and average hourly earnings rising by 5.1 percent annually, many Americans are falling behind.
To bridge the gap, some are dipping into pandemic savings. Swonk estimates that “consumers have drained about $600 billion of the excess $2.5 trillion in savings they amassed during the pandemic to deal with the bite of higher prices.” The loss in savings is disproportionate for low-income households, who were able to bolster savings during the pandemic for the first time in decades due to stimulus and enhanced child tax credits.
Even with early indications that the labor market and the economy are starting to slow down, the June data keep the Fed on track to raise interest rates by another 0.75 percent at the next meeting in three weeks. The central bank has said that it is willing to tolerate higher unemployment to fight inflation.