Strong June jobs report dims outlook for US economy | Associated press

WASHINGTON (AP) — A strong hiring report for June eased fears that the U.S. economy is on the mend. the dawn of a recession – and highlighted the resilience of the country’s labor market.

Yet the figures the government released on Friday also highlighted the sharp divide between the healthy labor market and the rest of the economy: inflation has peaked in 40 yearsconsumers are more and more morose, home sales and manufacturing is weakening and the economy may actually have shrunk over the past six months.

The contrasting picture suggests an economy at a crossroads. Strong hiring and wage growth could help avoid recession. Or, conversely, painful inflation and ever-higher borrowing rates by the Federal Reserve could discourage consumer and business spending and weaken growth, ultimately leading businesses to cut hiring or even cut jobs.

For now, at least, the last Department of Labor employment data shows that many companies want to keep hiring. Employers added 372,000 jobs in June, a surprisingly strong gain and in line with the pace of the previous two months. Economists had expected job growth to slow sharply last month given broader signs of economic weakness.

The unemployment rate remained at 3.6% for fourth consecutive monthmatching a nearly 50-year low reached before the pandemic hit in early 2020.

“Despite all the pessimism in the markets right now, companies themselves still seem quite optimistic about their own progress,” said James Knightley, chief economist at ING, a bank. “That kind of alleviates the short-term fear that we’re heading into an impending recession.”

However, many uncertainties cloud the outlook for the economy. Consumers cut spending, once adjusted for inflation, in May for the first time this year. Home sales fell 9% from a year ago. And the Federal Reserve is raising its key rate to fastest pace in three decadeswith the aim of reining in consumer and business spending and curbing inflation, but increasing the risk that it will eventually cause a recession.

“Economic tea leaves become harder to read when the economy is at a turning point,” said Daniel Zhao, senior economist at job site Glassdoor. “Or, in other words, the turning points are only evident in hindsight.”

Jason Furman, a Harvard economist who was a top economic adviser to President Barack Obama, said the gap between healthy jobs data and the overall economic picture was the widest in 70 years. In the first half of this year, employers added 2.7 million jobs, although other data suggests the overall economy contracted during this period.

“Everything about the economy over the past two and a half years,” Furman said, “has been extremely unusual, and continues to be.”

Furman noted that economic growth data could be revised in coming months to show that the economy did indeed expand earlier this year, at least slightly. Or, many employers could catch up on hiring after struggling to find workers for months and could soon be cutting back on staff as the economy shrinks.

So far, many sectors of the economy have posted solid job gains in June. Health care added 78,000, transportation and warehousing 36,000 and professional services – a category that includes accounting, engineering and legal services – gained 74,000. And a sector that mainly includes jobs in restaurants, hotels and entertainment added 67,000 jobs.

John Schall, owner of a Boston-based Tex-Mex restaurant chain called El Jefe’s Taqueria, is seeing strong sales growth and says he’s optimistic about his business. He plans to open his eighth restaurant next week in Pittsburgh. Schall has hired five managers there and will add up to 30 hourly workers.

Having opened six stores in the chaotic two years since the pandemic hit, he is relatively oblivious to inflation and supply chain issues.

“All are issues, but overall I couldn’t be more excited about where we are and where we’re going,” Schall said.

Rising prices have eroded his profits, he said, but he believes inflation will be temporary, so he does not expect price increases beyond the one he imposed nine years ago. month.

Still, some companies are announcing layoffs or have suspended hiring. Especially, several large retailers, including Walmart and Amazon, said they have overhired during the pandemic, with Walmart cutting its workforce through attrition. Retailers cut an average of 9,000 jobs a month in the April-June quarter, after adding 70,000 a month from January to March. This trend may mean that stores are anticipating a downturn in spending ahead.

Leah Kirpalani, the founder of Shop Good, a “clean beauty” and wellness company with two locations in San Diego, nervously watches her sales. She has noticed that consumers are increasingly focusing on essential products like moisturizers and cleansers. Most don’t buy additional products like serums, she said, and they’re hesitant to try new products.

For the moment, it does not plan to reduce its workforce. But that could change if conditions worsen.

The Fed may see strong job growth in June as evidence that the rapid pace of hiring is still food inflation as companies raise wages to attract workers, then raise prices to cover their higher labor costs.

Yet Friday’s jobs report suggested such a “wage-price spiral” is not yet happening, an encouraging sign in the central bank’s fight against inflation. Average hourly earnings rose 5.1% in June from a year earlier, down from a high of 5.6% in March.

When the government reports last month’s inflation next week, the figure is likely to remain high and could even top 8.6% year-on-year in May. But many economists believe falling prices for oil, gasoline and other commodities like wheat and lumber will dampen headline inflation in the coming months.

Still, inflation remains a pressing concern for most Americans, frustrating President Joe Biden’s efforts to gain credit for what has been a historically rapid jobs recovery from the pandemic recession. The country has now recovered all of the private sector jobs lost to the downturn in the pandemic, just over two years after it hit. In contrast, it took almost five years to regain all the jobs lost during the Great Recession of 2008-2009.

Fed Chairman Jerome Powell remained hopeful that the economy will continue to grow even if the central bank raises borrowing costs. But Powell also acknowledged that foreign factors, such as Russia’s invasion of Ukraine, which drove up gas and food prices, will make it difficult to avoid a downturn.

Last month he conceded that a recession “is not the expected outcome, but it is certainly a possibility”.

AP Business Writer Anne D’Innocenzio contributed to this New York story.

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