US job growth surges despite inflation and recession fears

If the economy is heading into a recession, US employers haven’t received the memo.

Job growth exploded in July, the Labor Department said on Friday, pushing total employment back to its prepandemic level. The jobless rate inched lower to 3.5 percent, also where it stood before COVID hit.

Employers added 528,000 jobs last month, double most forecasts. Job gains were widespread, the Labor Department said, led by leisure and hospitality, professional and business services, and health care.

The hiring binge is a confounding development at a time when soaring inflation has rattled consumer and business confidence and other indicators point to an economic slowdown and possible recession. The increase in payrolls is especially astounding given that the labor force, or pool of available workers, shrank in July.

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“If you thought the economy was in a recession, you were wrong,” said John Leer, chief economist at Morning Consult, a research firm.

Instead, Friday’s report increases the pressure on the Federal Reserve to continue raising interest rates to combat inflation, which is running at the hottest pace since the early 1980, Leer said.

Wage growth, a key inflation concern, ticked up to 5.2 percent compared with a year ago, up from a 5.1 percent rate year-over-year rate in June.

The central bank has raised its benchmark federal funds rate by 2.25 percentage points since March. While that’s the most extreme hike since the early 1980s, the Fed was starting with rates near zero. Rates remain low compared with historical levels, but the Fed’s aggressiveness has been enough to cool off an overheated economy, including the housing market.

The job market has remained surprisingly resilient amid all the concerns of a “hard landing” — that is, the Fed’s anti-inflation rate hikes will go too far and choke off all growth.

Gross domestic product, the broadest measure of the economy, has declined for two consecutive quarters. That’s a common definition of a recession, but economists, pointing to rising employment, believe the economy continues to expand, albeit at a much slower speed.

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“Overall, I’ve thought the consensus was overworried about recession & underworried about inflation,” Harvard economist Jason Furman said on Twitter. “This report is consistent w/ that.”

But while Furman was cheered by the increase in hiring, he’s concerned about “what it means for the size of the adjustment we may have coming.”


Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.

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