The U.S. job market remains surprisingly strong, adding 372,000 jobs in June, keeping unemployment low, despite ballooning interest rates and significant layoffs across several industries.
The unemployment rate in June remained at 3.6% for a fourth consecutive month, the Labor Department reported on Friday, matching a near-50-year low. However, the Federal Reserve may regard the June job gain and the past year’s streak of hiring as evidence that the rapid pace is feeding inflation.
The Fed wants job growth to slow, at least modestly, as part of its strenuous efforts to cool the economy and curb high inflation.
In response, the Fed has embarked on its fastest series of rate hikes since the 1980s, and further increases would make borrowing much costlier for consumers and businesses.
The high number of jobs added in June is a sign that a recession is not as close as all the panic makes it seem, said James Knightley, chief economist at ING bank.
“For all the doom and gloom that’s in the markets right now, companies themselves still seem pretty upbeat on their own progress,” said Knightley, “It sort of dampens the near-term fear that we’re heading into an impending recession.”
The need for many businesses to continue growing and hiring seems to be a buffer against the likelihood that the economy will tip into recession over the next year. This is somewhat at odds with the nearly 235,000 jobless claims files last week. For now, there are roughly two posted job openings for every unemployed worker.
Many employers are still struggling to fill jobs, especially in the economy’s vast service sector, with Americans now traveling, eating out, and attending public events with much greater frequency.
At the same time, economic growth has remained negative for two straight quarters. The decrease shows that consumers are slowing their spending with inflation at a four-decade high and home sales falling as the Fed raises interest rates.
The transition to a more sustainable pace of growth and hiring is likely to be bumpy. If, for example, the Fed’s rate cuts slow growth too much, as many analysts fear, the economy could slide into a recession by next year. Already, signs of a slowdown are evident. In May, consumer spending, adjusted for inflation, fell for the first time since December. Sales of existing homes have fallen nearly 9% compared with a year ago.