New Jobs Report a 'Summer Scorcher,' Says CU Economist; Challenge Ahead for Fed

 WASHINGTON– Blowing past nearly all forecasts, the U.S. economy during July added 528,000 jobs, according to data from the Bureau of Labor Statistics. 

Curt Long

The gain was more than double the 250,000 what many economists has been expecting, and the U.S. has now regained all jobs lost during the pandemic, after expecting a blowout.

The data show the unemployment rate continues to decrease, declining to 3.5% in July after steadily holding at 3.6% for the past four months. The July jobless rate matched the half-century low last seen in February 2020. 

The new numbers mark the 19th consecutive month of job growth and is the highest monthly gain since the economy added 714,000 jobs in February.

Challenge for Fed

“The July jobs report was a summer scorcher, and will likely be seen as uncomfortably warm for policy makers focused on cooling off inflation,” said NAFCU Chief Economist and Vice President of Research Curt Long. “On the bright side, the most pressing economic anxieties can be safely put to bed, at least for now. An economy adding over 500,000 jobs per month is not one that’s in recession. But wage gains show no sign of weakening, and that does not bode well for a Federal Reserve tasked with reining in inflation. Unless the data turns between now and then, another 75-basis point hike from the Fed in September looks likely.” 

According to the federal data, the employment growth was widespread across sectors, with leisure and hospitality seeing some of the biggest gains. However, employment in that key service sector is still more than one-million jobs below its pre-pandemic level, according to the BLS.

The labor force participation rate ticked down to 62.1% from June’s 62.2%. Average hourly earnings rose by 0.5% from the prior month and are up 5.2% over the past year, BLS data show.

'Labor Market Very Tight'

CUNA Senior Economist Dawit Kebede noted "The labor market remains very tight. There are more job openings than the number of unemployed people and quit rates are remarkably high. The labor force participation rate, expected to increase as COVID concerns recede, declined slightly in July. This sustained imbalance in labor demand and supply will lead to an increase in wages adding more inflationary pressure.  

“The Federal Reserve will likely stay the course of interest rate hikes announced in its June Federal Open Market Committee projection, 3.4% by year end, despite recent reports of slowdown in consumer demand.”