For months, as inflation soared and the Federal Reserve moved aggressively to reduce it, the question hovered over the monthly employment reports: Has the labor market already succumbed to gravity?
The answer so far has been “No, mostly not.” But in the July report, which arrives on Friday, the answer is likely to be “Yes, but it didn’t crash into the ground.”
Since supply chain problems and the war in Ukraine caused prices to soar, the economy’s brightest feature has been steady job growth, with 6.3 million jobs added over the past 12 months. As of June, the United States was within 520,000 jobs of its pre-pandemic peak, held back by a decline in government employment.
But that recovery has come under increasing strain as inflation has eaten away at consumer spending power and dampened mood, and rising interest rates have begun to weigh on demand for big purchases like homes and cars. Inflation-adjusted gross domestic product fell for a second straight quarter, held back by slower inventory growth and a decline in housing investment.
And there are recent signs that the economic hurdles are also affecting the labor market. Vacancies fell from record levels in the spring, driven by declining demand for workers in the retail, leisure and hospitality industries. Initial claims for unemployment insurance rose to 260,000 a week last month from a low of 166,000 a week in March. LinkedIn hiring has slowed since April, especially in construction and hospitality.
Forecasters on average expected Friday’s report to show the nation added 250,000 jobs in July. Last month’s report showed a gain of 372,000 in June, on par with the previous three months.
Polling and analytics firm Morning Consult, which polls about 20,000 people a week, has seen an increase in the number of adults in the United States who report losing income due to layoffs or reduced hours. Consistent with research showing that people of color are the first to be hit by the hiring slowdown, those increases have been sharpest among black and Hispanic workers.
However, the increase in income losses is not concentrated in sectors sensitive to spikes in coronavirus transmission, as has been the pattern since 2020.
“It’s not a Covid story – I think it’s a broader macro slowdown,” said Morning Consult chief economist John Lear. “People have been hoarding workers and right now we’re at a point where it makes sense to let them go because of the uncertainty of the business cycle.”