Strong hiring figures for June dispelled worries that the American economy might be headed for a slump and showed how resilient the labour market is in the nation.
Inflation is at 40-year highs, consumers are becoming more pessimistic, home sales and manufacturing are declining, and the economy may have shrunk over the past six months, according to the government’s figures, which were released on Friday.
These statistics also highlighted the stark contrast between the robust labour market and the rest of the economy.
The picture on the left demonstrates how the economy is about to make a turn. Strong hiring and pay growth could help avoid a recession.
Or, on the other side, the painful inflation brought on by the Federal Reserve and the gradually increasing borrowing prices could discourage consumer and business spending and impede growth, ultimately causing businesses to cut back on hiring or even eliminate positions.
According to the Labor Department’s most current employment figures, many businesses are still looking to hire, at least temporarily.
Employers added 372,000 new employment in June, which was a sizable gain and comparable to the rate of the previous two months. Economists had predicted a sharp decrease in job growth last month given the more widespread signs of an economic downturn.
The unemployment rate remained at 3.6 per cent for the fourth consecutive month, marking a low that hadn’t been reached in almost 50 years before the start of the epidemic in early 2020.
For all the market doom and gloom right now, corporations themselves still feel pretty confident about their own growth, according to James Knightley, chief economist of ING, a bank. It somewhat diminishes the concern that a recession is approaching in the immediate run.
However, there remains a great deal of ambiguity shrouding the economy’s future. Consumer expenditure fell in May for the first time this year after inflation was taken into account. Comparing this year to last, there were 9% fewer properties sold.
The Federal Reserve is also raising its benchmark interest rate at the quickest rate in three decades to restrain consumer and business spending and manage inflation, although doing so raises the possibility that it may eventually result in a recession.
The economic tea leaves are more difficult to interpret when the economy is at a tipping point, according to Daniel Zhao, the senior economist at the job-search website Glassdoor. Or, to put it another way, turning points don’t always become apparent right away.
According to Jason Furman, a Harvard economist who served as President Barack Obama’s top economic adviser, the disparity between the robust job market and the overall economic picture is the greatest it has been in 70 years.
2.7 million new jobs were created by employers in the first half of this year, despite other figures showing an overall decline in the economy during that period.
“The economy during the previous two and a half years has been extraordinarily distinctive, and it still is,” said Furman.
The economy did, at the very least, expand earlier this year, Furman noted, and the statistics on economic growth may be revised in the coming months to reflect this.
Or, many businesses may still be hiring despite having a hard time finding workers for several months, and they may soon downsize their workforce as the economy falters.
For the time being, strong job growth in June was recorded by numerous economic sectors. Professional services—a sector that includes accountancy, engineering, and legal services—grew by 74,000 while transportation and warehousing expanded by 36,000.
In addition, 67,000 additional jobs, mostly in the hospitality, restaurant, and entertainment sectors, were created.
Owner of El Jefe’s Taqueria John Schall claims strong sales growth and is optimistic about the future of his business.
A Tex-Mex restaurant chain called El Jefe’s Taqueria has outlets all across Boston. He plans to open Pittsburgh’s ninth restaurant the following week. There, Schall has hired five managers and up to 30 hourly workers.
In the turbulent two years since the outbreak began, he has opened six outlets, and he doesn’t seem to be bothered by supply chain problems or inflation.
Even though they are all issues, Schall concluded, “I couldn’t be more excited about where we are and where we’re going.
However, he believes that inflation would be short-lived and has already implemented a price rise nine months ago, so he doesn’t plan to raise prices anymore.
The hiring process has been put on hold or even halted in some organisations. At the height of the pandemic, several major retailers, including Walmart and Amazon, admitted that they had employed too many people.
During the April-June quarter, retail companies shed an average of 9,000 positions each month, after adding an average of 70,000 new employees per month from January to March, Stores may be preparing for a decrease in sales as a result of this trend.
Leah Kirpalani, the owner of Shop Good, a San Diego “clean beauty” and wellness store, is keeping a close eye on her sales.
Among the things she’s observed is a shift in customer priorities toward everyday necessities like moisturisers and cleansers. She claims that most people are afraid to try new items, such as serums because they don’t want to spend extra money on them.
She has no immediate intentions to cut back on her workforce. However, if the situation worsens, this might all change.
As employers raise wages to recruit people and then raise prices to meet their higher labour costs, the Fed may view the robust June employment gain as evidence that the quick hiring pace is feeding inflation.
However, the jobs report released on Friday showed that a “wage-price spiral” has not yet occurred, which is positive in the fight against inflation being waged by the central bank. Compared to a year earlier, average hourly income grew 5.1%, down from a peak of 5.6% in March.
Next week, the government will release its latest inflation data, and the amount is expected to be considerably higher than the 8.6 per cent year-over-year increase in May.
However, many analysts believe that lowering oil, gas, and other commodity prices, such as wheat and lumber, will reduce total inflation in the coming months.
As a result, President Joe Biden’s efforts to get credit for what has been a remarkably swift job recovery from the global crisis have failed because inflation remains a major issue for most Americans.
A little more than two years after the pandemic slump began, the United States has recouped all of the private sector employment that was lost. During the Great Recession of 2008-2009, it took nearly five years to recoup all the jobs lost.
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With rising borrowing costs, Federal Reserve Chair Jerome Powell has expressed optimism that the economy will keep growing.
The Russian invasion of Ukraine and the consequent rise in gas and food costs have been acknowledged by Powell, but he has also conceded that domestic factors will make it difficult to avoid a downturn.
It’s not something he wants to happen, but it’s a possibility, he said in a recent interview.
