Nonfarm payrolls grew by 528,000 in July, while unemployment tied its all-time record low and labor force participation declined for the third straight month—contradicting concerns of a recession, but also offering no relief for an extremely tight job market.
“I find this to be a completely odd report,” said Senior Economist Ron Hetrick in the Lightcast live discussion this morning. “You have a fantastic payroll survey number that exceeded a lot of peoples’ expectations…and then you see this really disturbing trend in the household survey where we follow up a decline in labor force participation with another decline in labor force participation.”
Many predictions had anticipated growth of about 250,000 jobs, a slowdown compared to the past several reports as the Federal Reserve has raised interest rates over the summer and the June Job Openings and Labor Turnover Survey showed openings had dropped. Instead, the monthly Employment Situation report from the Bureau of Labor Statistics showed job growth was over double that estimate.
And while two straight quarters of negative GDP growth have been a traditional rule of thumb for a recession, the higher-than-expected job growth shows that any potential slowdown is not being felt in the labor market. In fact, July saw the highest gain in payrolls since February of this year.
“This just really continues to be a sign that there is sort of a disconnect between what we're seeing in the larger economy versus the labor market,” Senior Economist Rucha Vankudre said during the broadcast. “In the labor market, hirings are still very high, quits are still at pretty high levels, layoffs are not coming up the way people expected, and this jobs number was really huge. I think it really just points out like what a unique time we're in right now, and that predictions are going to be hard to make.”
Part of the disruption seen in this report is the ongoing lack of workers available. While unemployment continues to edge lower and lower, so has the labor force participation rate—it ticked down slightly to 62.1% in July, after declining to 62.2% in June and 62.3% in May.
The number of “missing workers,” (those who want a job but aren’t currently looking for one) remained essentially unchanged at 5.9 million, also above pre-pandemic levels. Lightcast research has shown that many of these missing workers could be brought back to the job market with the right incentives.
One important note from this report is that employment and the unemployment rate have both returned to their February 2020 levels. Among industries, Accommodation and Food Services—which has been especially sensitive to pandemic trends—saw the biggest gain in total change of postings.
As inflation concerns continue to hover over the economy, worker earnings continue to rise slower than the rate of inflation. On average, workers earned $32.27 in July, up 15 cents from June and up 5.22% over the past twelve months—which is a sizable gain, but it isn’t keeping up with inflation. The latest data from the Consumer Price Index show prices have risen 9.1% over the past year. Though real wages are declining, this also means that a wage-price spiral isn’t pushing inflation higher.
The complex, even contradictory, set of data—a high jobs number, declining labor force participation, record-low unemployment, and wage growth below inflation—all show that the labor market is in new territory, facing unprecedented and unpredictable trends.
Consistent among all these changes is employers’ red-hot demand for workers. Even as some trends indicate recession, the strong job market shows that it’s highly unlikely any economic downturn will result in the kind of job losses seen in the past.
“Everybody's paradigms are being blown up,” Hetrick said during the live discussion. “I see economists looking at things that happened in the past and trying to say that that's going to happen now, but you have to understand our dynamics right now are so incredibly different from anything we've ever experienced.”