(CN) — Shattering expectations as recession fears grow, the U.S. economy added a whopping 528,000 jobs in July while the unemployment rate dropped to 3.5%.
Despite other worrying economic indicators pointing to a possible downturn, the latest jobs report released by the Labor Department on Friday morning shows employers are still hiring at a rapid pace. Economists had been predicting only about 258,000 new jobs last month and a 3.6% unemployment rate.
The 3.5% jobless rate in July and the actual number of unemployed people – 5.7 million – are both back to their pre-pandemic levels from February 2020, according to the report.
Wages are still on the rise too, with average hourly earnings up 0.5% for the month and 5.2% over the last year.
“The unexpected acceleration in nonfarm payroll growth in July, together with the further decline in the unemployment rate and the renewed pick-up in wage pressures, suggests the economy is still a long way from recession,” said Michael Pearce, senior U.S. economist at Capital Economics.
The better-than-expected labor market numbers stand in contrast to other signs that the U.S. is headed for a recession. The economy shrunk for the second quarter in a row and the Federal Reserve raised interest rates last month for the fourth time this year in a bid to smother surging inflation.
Friday’s robust jobs report could add to concerns about inflation and lead to another rate hike when the Fed meets again next month. Pearce said the report raises the odds of another 0.75% increase by the central bank in late September.
“We hear chatter about a recession, but see no signs of that in the labor market data,” said Nick Bunker, economist research director at Indeed Hiring Lab.
Bunker pointed out that the economy has added an average of 437,000 jobs a month for the last three months, which he said shows a tight labor market with a high demand for workers.
“Underestimate the U.S. labor market at your own peril,” he wrote. “Yes, output growth might be slowing and the economic outlook has some clouds on the horizon. But employers are still champing at the bit to hire more workers. That demand may fade, but it’s still red hot right now.”
Leisure and hospitality led the way in hiring last month by adding 96,000 jobs, including 74,000 at food and drinking establishments. The industry was hit hardest by the Covid-19 pandemic and is still down 1.2 million jobs compared to February 2020.
Professional and business services came in a close second, adding 89,000 positions in July. The sector has done remarkably well during the economic recovery and now has 986,000 more jobs than it did before the pandemic.
Health care payrolls rose by 70,000 while significant gains were also seen in construction (32,000), manufacturing (30,000), social assistance (27,000), retail (22,000) and transportation and warehousing (21,000).
The public sector added 57,000 jobs – 10,000 each at the state and federal government levels and 37,000 in local government – but is still down 597,000 compared to February 2020.
In addition to the strong numbers for July, job gains for May and June were also revised up to 386,000 and 398,000, respectively. The latter figure includes 26,000 more jobs added than previously thought.
President Joe Biden took a victory lap Friday morning, saying in a statement that more Americans are working now than at any point in U.S. history.
“That’s millions of families with the dignity and peace of mind that a paycheck provides. And, it’s the result of my economic plan to build the economy from the bottom up and middle out,” he said. “I ran for president to rebuild the middle class – there’s more work to do, but today’s jobs report shows we are making significant progress for working families.”
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