In the US, there was more hiring than expected in July 2022. With this the unemployment rate fell to the pre-pandemic level of 3.5%. This gives the strongest indication so far that the economy was not in recession.
The Labor Department said in its closely watched employment report Friday that nonfarm payrolls added 528,000 jobs in the past month. In June 2022 data, this figure was 372,000, which was later revised to 398,000 after increasing. The unemployment rate in June was 3.6 percent.
Economists in a Reuters poll had forecast an increase of 250,000 jobs and the unemployment rate to remain stable at 3.6%. These estimates ranged from a minimum of 75,000 jobs to as much as 325,000 jobs.
The employment report paints a picture of a very healthy economy despite back-to-back quarters of contraction in GDP. Labor demand in sensitive sectors such as housing and retail has declined, but airlines and restaurants are not getting enough workers.
Strong job growth could put pressure on the Federal Reserve to raise interest rates by a third 75 basis points at its next meeting in September. However, a lot will depend on the inflation reading.
The US central bank last week raised its policy rate by three-quarters of a percentage point. It has raised that rate by 225 basis points since March. The economy had contracted by 1.3% in the first half. This was mainly due to the decline in global supply chains due to large fluctuations in inventory and trade deficit. Still the pace is slow.
With 10.7 million new jobs and 1.8 opening for every unemployed person at the end of June, the labor market remains tight and economists do not expect a sharp decline in payroll hikes this year.
Average hourly earnings rose 0.5% last month after rising 0.4% in June. This resulted in a year-on-year increase in wages to 5.2%. Although the salary hike is at its peak, the pressure remains. Last week’s data showed that the annual salary hike in the second quarter was the sharpest since 2001.