Washington Far more jobs were created on the US labor market in July than expected. Last month, 528,000 new jobs were added, as the government announced in Washington on Friday. Economists polled by Reuters had expected just 250,000, down from a revised 398,000 in June. The separately calculated unemployment rate fell to 3.5 percent in July from 3.6 percent in June. The number of jobs lost in the course of the pandemic has now been restored.
The labor market is a mystery to economists. In view of the high inflation and the rapidly rising interest rates, the economy had recently shown weaknesses. Economic growth slowed for the first two quarters of the year, which is a technical definition of a recession. The housing market had also given way.
However, many of the applicants find a new job comparatively quickly. That has sparked debate about the strength of the world’s largest economy.
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Jeanette Garretty of wealth manager Roberstons Stephens said on CNBC: “We cannot be in a recession if the unemployment rate does not rise.” Meanwhile, the labor market has had a number of developments unfolding since the pandemic that could create lasting distortions. The employment rate fell slightly in July, to 62.1 percent. Average hourly wages, on the other hand, rose by 5.2 percent compared to the previous year.
Wealth effect has significantly reduced the number of employees
The regional Federal Reserve in St. Louis, one of the 12 central banks that make up the US Federal Reserve (Fed) in Washington, estimates that three million workers have retired early because of the big rally in markets has significantly strengthened the fortunes of many Americans over the past two years. This wealth effect, fueled by low interest rates, has significantly reduced the number of workers.
The unemployment rate fell to 3.5 percent in July from 3.6 percent in June.
(Photo: dpa)
Younger workers, up to the age of 24, would feel the negative consequences of the pandemic particularly badly, believes Vincent Deluard, an analyst at broker StoneX. “The number of people struggling with addiction problems, anxiety and obesity has increased, leaving many young people unable to work.”
Others, on the other hand, would rather work as part of the so-called gig economy on their own account for ride-hailing services like Uber and food delivery companies like DoorDash, or try themselves as influencers on the internet. Deluard points out, “Kids no longer dream of being astronauts or firefighters. Being successful on Instagram and Youtube is the new Holy Grail for Gen Z.”
As a result, companies have had too few staff for months and, in case of doubt, “horde” staff because the labor market is so tight, says Diane Swonk, chief economist at management consultancy KPMG – even though the economy is cooling off.
Further course of the US Federal Reserve
The strong labor market data also lead to new discussions about the further course of the Fed. It had raised the key interest rate by 0.75 percentage points twice in a row, and it is now in a range of 2.25 to 2.5 percent.
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Federal Reserve Chairman Jerome Powell had argued that the US economy could still cope with significantly higher interest rates and that the Fed must therefore focus on fighting inflation. This is 9.1 percent. Fresh data on July price increases will be released next week.
A number of central bankers had spoken out in favor of significantly higher interest rates in the past few days. Loretta Mester, head of the regional central bank in Cleveland, spoke out in favor of a key interest rate of over four percent on Thursday. This level should be reached in the first half of next year.
However, other economists, such as former Treasury Secretary Larry Summers, believe that significantly higher interest rates will be needed to fight inflation.
Wall Street reacted cautiously to the strong jobs data. The leading indices Dow Jones, Nasdaq and S&P 500 fell by up to 1.1 percent at the opening on Friday.
More: Failure of ECB and Fed – Four reasons why central banks reacted so late to inflation