U.S. economy adds 187,000 jobs in July

The U.S. economy added 187,000 jobs in July, signaling a healthy gain but a cooling of the labor market.

The unemployment rate fell to 3.5%, according to a Bureau of Labor Statistics report released Friday, near 50-year lows.

Combined with June’s revised jobs gain of 185,000, the past two months have marked the weakest level of job growth since December 2020, but the gains are still considered solid.

May’s job gains also were revised downward notably in Friday’s report, adding to evidence that the labor market has cooled substantially since last year.

“The labor market is cooling ever so slightly each month as the U.S. economy proves resilient to very intense interest rate tightening,” said Jesse Wheeler, a senior economist at the business intelligence company Morning Consult.

“Business cycles inevitably end, and there will be a recession at some point, but whether it’s in the immediate term is becoming less and less likely.”

The good news for workers is that wages are still rising. Average hourly wage growth remained steady in July, rising by 4.4% over the year, to $33.74 per hour.

Fed policymakers are keeping a close eye on wage growth, because they worry that fast-rising wages will tamper with their ability to bring down inflation, which was 3% in June.

In July, job growth was fueled by strength in health care, social services, financial activities and wholesale trade.

The health care industry added 63,000 jobs, with big increases in hiring by hospitals and nursing-care facilities.

Coming out of pandemic lockdowns, an increasingly older population is placing greater demand on the health care sector for its services.

Financial services, where job growth has been slow if not flat this year, added 19,000 jobs, with the largest gains in real estate and rental and leasing, offsetting job losses in commercial banking.

Wholesale trade also bounced back, notching 18,000 additional jobs in July after months of stagnation.

Employment in construction also continued to trend up, even as rising interest rates have weighed on home buyers.

Retail, manufacturing, transportation and warehousing, as well as the information sector, which includes tech, saw little to no growth.

The federal government is helping buoy the labor market by pouring billions of dollars into infrastructure and green-energy projects.

And consumers also are helping a lot, with consumer confidence in July hitting a two-year high, according to the Conference Board, a nonprofit business research organization.

All this optimism has silenced near-term recession fears and led the Atlanta Federal Reserve to update its economic growth forecasts, suggesting that GDP could soar in the third quarter to 3.9%, an annual rate not seen since the stimulus-fueled pandemic recovery months of 2021.

Indeed, more than a year into a sustained effort by the Federal Reserve to fight inflation by raising interest rates, employers continue to hire at a rapid pace, despite cooling in interest-rate-sensitive sectors such as technology, construction and manufacturing.

Layoffs remain low, and unemployment claims are trending down over a four-week period.

“What’s really stunning about what’s going on is that we’re seeing gains in some sectors offsetting losses elsewhere,” said Diane Swonk, the chief economist at KPMG US.

“We’ve seen layoff announcements and bankruptcies rise, but the labor market has continued on, because there are still so many job openings to fill that it is able to keep going.”

As private industry has slowed somewhat, state and local governments, which had been strapped for workers since the pandemic, have been able to hire more easily.

“The government is accounting for a larger share of job gains because, with private sector hiring slowing, they finally can compete for jobs,” said Julia Pollak, the chief economist at ZipRecruiter.

Heather Burke, a county child welfare worker in Westminster, Colo., had to take on responsibilities that were not part of her job description during the COVID-19 pandemic as staffing levels plummeted in child services.

This included making “intake visits” to homes to investigate allegations of child abuse that help determine whether children must be removed from their homes and be put into foster care.

“I had done that job for five years in the past, and it took years to recover from the trauma. Having to go back into intake was traumatic,” said Burke, who has worked for Adams County for 11 years.

Over the past year, the staffing crisis has abated somewhat, and workers have returned to their normal roles, Burke said, as the agency has since been able to fill open positions and even create new jobs.

Some child welfare workers who quit during the pandemic have returned to work, in part because of winning a strong union contract, she said.

At the same time, a cash infusion from the federal government and related private investment in infrastructure and green-energy projects, such as electric vehicles and airport upgrades, have been keeping the construction and manufacturing industry afloat.

Under President Biden, the federal government has announced some $299 billion and sparked another $503 billion in business investments that is trickling through the economy.

Last month, construction and manufacturing added 23,000 and 15,000 jobs, respectively.“Manufacturing and construction employment would have fallen this year absent this investment, rather than just rising slowly,” Pollak said.

To be sure, there are warning signs for the labor market on the horizon.

The number of people working part time for reasons beyond their control rose by 452,000 in June, the largest increase in more than three years.

Meanwhile, the Black unemployment rate, which hit a record low in April at 4.7%, increased in May and again in June, to 6%.

A wide body of research indicates that Black workers are the first to lose jobs in economic downturns.

Although labor shortages across the country have eased over the past year, workers still have elevated leverage in the labor market, as has been on display in this summer’s wave of robust union activity.

There are 1.5 job openings for each unemployed worker, according to a Labor Department report released Tuesday.

Some sectors are still struggling to find workers, especially with specific, high-demand skills, such as public school science teachers and accountants.

Marie Young says she has not been able to fill three job openings at her accounting firm in Asheville, N.C., since January as demand for her services has boomed.

During the pandemic, several competitor accounting firms in her area closed, their owners retiring, just as demand for assistance with Paycheck Protection Program loans and employee retention credits were at an all-time high.

To attract talent, Young has raised wages, started covering 100% of employees’ health-care costs and brought on temporary workers through hiring agencies. But she’s had little luck.

“Younger people aren’t wanting to go into this business, with its long hours, liabilities and the ever-changing tax laws,” said Young, who has run her business for 30 years and has eight accountants and bookkeepers on staff.

“Things have changed,” she continued. “People ask us constantly, ‘Can we work remotely?’ But in our industry, our clients don’t want their data going out of this building, so we say, ‘Nope.’”