WASHINGTON (AP) – A strong June hiring report has allayed fears that the U.S. economy could be on the brink of a recession and highlighted the country’s labor market resilience.
However, figures released by the government on Friday also highlighted the sharp divide between the healthy labor market and the rest of the economy: inflation has soared to a 40-year high, consumers are every increasingly bleak, home and industry sales are weakening and the economy could have shrunk over the past six months.
The contrasted image suggests an economy at a crossroads. Strong growth in hiring and wages could help avert the recession. Or, conversely, painful inflation and rising debt rates designed by the Federal Reserve could discourage consumer and business spending and weaken growth, ultimately causing companies to cut hiring or even reduce work places.
For now, at least, the latest employment data from the Department of Labor shows that many companies still want to continue hiring. Employers added 372,000 jobs in June, a surprisingly robust increase and in line with the pace of the previous two months. Economists expected job growth to slow sharply last month given the more general signs of economic weakness.
The unemployment rate remained at 3.6% for the fourth consecutive month, equaling the nearly 50-year low reached before the pandemic hit in early 2020.
“Despite all the sadness in the markets right now, the companies themselves still seem quite optimistic about their own progress,” said James Knightley, chief economist at ING, a bank. “In a way it dampens the short-term fear that we are heading for an impending recession.”
Still, there is a lot of uncertainty clouding the outlook for the economy. Consumers cut their inflation-adjusted spending in May for the first time this year. Home sales have fallen 9% from a year ago. And the Federal Reserve is raising its key interest rate at the fastest pace in three decades, with the goal of cooling consumer and business spending and curbing inflation, but increasing the risk of eventually causing a recession.
“Cheap tea leaves are harder to read when the economy is at a turning point,” said Daniel Zhao, senior economist at the Glassdoor employment website. “Or, to put it another way, the turning points are only evident in retrospect.”
Jason Furman, a Harvard economist who was one of President Barack Obama’s top economic advisers, said the gap between healthy employment data and the overall economic outlook is the widest it has been in 70 years. During the first half of this year, employers added 2.7 million jobs, although other data suggest that the global economy contracted during that time.
“Everything about the economy over the last 2 and a half years,” Furman said, “has been extremely unusual and continues to be so.”
Furman noted that data on economic growth could be revised in the coming months to show that the economy actually expanded earlier this year, at least slightly. Or, many employers may be playing catch-up with hiring after struggling to find workers for months and could soon reduce the workforce as the economy shrinks.
So far, many sectors of the economy recorded strong increases in employment in June. Healthcare added 78,000, transportation and storage 36,000 and professional services, a category that includes accounting, engineering and legal services, earned 74,000. And a sector that mainly includes restaurants, hotels and entertainment jobs added 67,000.
John Schall, the owner of a Boston-based Tex-Mex restaurant chain called The Chief’s Taqueria, is enjoying strong sales growth and says he is optimistic about his business. He plans to open his eighth restaurant next week in Pittsburgh. Schall has hired five executives and will add up to 30 workers per hour.
Having opened six stores in the chaotic two years since the pandemic erupted, it is not relatively uncomfortable with inflation and supply chain problems.
“They’re all problems, but overall, I couldn’t be more excited about where we are and where we’re going,” Schall said.
Rising prices have eroded its profits, he said, but he believes inflation will be temporary, so he is not planning price increases beyond those he imposed nine months ago.
However, some companies are announcing layoffs or have stopped hiring. In particular, several large retailers, including Walmart and Amazon, have said they hired in excess during the pandemic, with Walmart reducing its number of employees due to wear and tear. Retailers cut an average of 9,000 jobs a month during the April-June quarter, after adding 70,000 in January-March. This trend may mean that stores anticipate slower spending.
Leah Kirpalani, the founder of Shop Good, a “clean beauty” and wellness business with two locations in San Diego, is nervously watching her sales. It has been realized that consumers are increasingly focusing on essential products such as moisturizers and cleansers. Most are not taking additional products like serums, he said, and are hesitant to try new products.
At the moment, he has no plans to reduce staff. But that could change if conditions worsen.
The Fed may view the sharp rise in employment in June as proof that the rapid pace of hiring is further fueling inflation as firms raise wages to attract workers and then raise prices to cover their labor costs more elevated.
However, Friday’s labor report suggested that this “wage-price spiral” is not yet occurring, an encouraging sign in the central bank’s fight against inflation. The average hourly wage increased by 5.1% in June compared to the previous year, below the maximum of 5.6% in March.
When the government reports next week on inflation last month, the figure is likely to remain high and could even surpass the 8.6% year-on-year reading in May. But many economists think falling prices for oil, gasoline and other commodities such as wheat and wood will dampen headline inflation in the coming months.
Still, inflation remains an urgent concern for most Americans, thwarting President Joe Biden’s efforts to earn credit for what has been a historically rapid job recovery from the pandemic recession. The nation has now regained all the private sector jobs lost by the pandemic fall, just over two years after its onset. Instead, it took almost five years to recover all the jobs lost during the Great Recession of 2008-2009.
Fed Chairman Jerome Powell has held out hope that the economy will continue to expand even as the central bank raises borrowing costs. But Powell has also acknowledged that foreign factors, such as the Russian invasion of Ukraine, which has pushed up gas and food prices, will make it difficult to avoid a recession.
Last month, he admitted that a recession “is not our expected outcome, but it is certainly a possibility.”
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AP Business writer Anne D’Innocenzio contributed to this story from New York.