Only eight days separate the two government reports, but they seem to describe very different facts.
The first showed the weakness of the economy – besides The highest inflation rate In 40 years it has offered consumers nothing but grief. The second reflects the overwhelming force that has been sealing jobs faster than workers can be found to fill them, with the unemployment rate matching the pre-pandemic low of 3.5 percent.
It is normal for different economic indicators to point in different directions. “The scale of the discrepancies right now is unprecedented,” said Jason Furman, formerly President Barack Obama’s chief economic adviser. It is not just that the economy is growing in one measure and shrinking in another. It grows incredibly strong in one scale while shrinking in a very decent clip in another.”
In Washington on Friday, President Biden scored a job growth victory while claiming that gas prices had fallen for more than 50 consecutive days. However, he also acknowledged the disconnect between the sunny employment report and the inflation headaches that many families are experiencing.
“I know people are going to hear the extraordinary jobs report today and say they don’t see it, they don’t feel it in their private lives,” the president said, speaking from the balcony of the White House. “I know how hard it is. I know it’s hard to feel good about creating jobs when you already have a job and you’re dealing with rising prices, food, gas, and more. I get it.”
The surprisingly strong jobs number seems to call into question the president’s argument that the economy is undergoing a “transition” from its faster growth rates last year to a slower, more sustainable pace.
No one expects the economy to continue to produce half a million new jobs each month. Nobody thinks it can be done without inflation remaining at uncomfortable heights.
Nearly five months after the Federal Reserve started raising interest rates to calm the economy and bring down The highest inflation rate Since the early 1980s, a labor market report has shown that the country’s central bank has more work to do. The average hourly wage of private sector workers has risen 5.2 percent over the past year, indicating the type and rate of wage spiral that the Federal Reserve has decided to prevent.
Last month, the Fed raised its benchmark interest rate to a range of 2.25 percent to 2.5 percent, its highest level in nearly four years. However, in “real” or inflation-adjusted terms, borrowing costs remain very negative, which acts as a catalyst for economic growth.
Federal Reserve Chairman Jerome H. Powell said last month that additional interest rate increases are likely when policymakers meet on September 21. The size of the next increase — either half a percentage point or three-quarters of a point — will depend on the data now and then.”
Investors see a 70 percent chance of such a larger move, according to CME Group, which tracks derivative purchases tied to the central bank’s key rate.
On Wednesday, the government is set to publish inflation readings for July, which is expected to show a modest improvement compared to 9.1 percent in June, thanks to lower energy prices.
Powell’s decision to stop telegraphing the Fed’s moves by providing “forward guidance” to his plans is in itself a sign that the current environment is more murky than usual.
“A lot of what happens in this economy is driven by the epidemic, and then the response to the epidemic. And so, we are in a very unusual time, in many ways. [it’s] It’s hard to read through that data, Loretta Meester, president of the Federal Reserve Bank of Cleveland and a voting member of the Fed’s rate-setting committee, told the Washington Post this week.
Nearly 22 million Americans lost their jobs between February and April of 2020 in the early months of Covid. The unemployment rate was 14.7 percent, the highest rate recorded by the Ministry of Labor in a series that began in 1948.
With July’s gains, the economy has now recovered from all the jobs lost.
But the workforce has been reconfigured. Today there are more workers in warehouses and logistics and fewer employees working in hotels and airlines.
Employers are reacting differently than they did before the pandemic to indications that the economy may be slowing, according to Gregory Dako, chief economist at EY-Parthenon. Rather than immediately resorting to massive layoffs, they are instead reducing hiring or engaging in targeted job cuts.
Weekly jobless claims rose for the first time, but only to 260,000 from a 54-year low of 166,000 in March.
Consumers They also behaved differently, buying more goods than usual while confined to the house during the first wave of the pandemic. Retailers who ordered extraordinary amounts of furniture, electronics, and clothing from foreign suppliers subsequently misjudged the pace of consumers returning to traditional buying patterns, leaving Stores stuffed with unwanted goods.
In addition to the chronic ills of the epidemic, The war in Ukraine It disrupted global commodity markets, which contributed to high inflation.
All these forces have combined to produce unusual and sometimes contradictory economic data. Friday’s jobs report showed that 32,000 new construction jobs and 30,000 new factory jobs were created during the month. However, housing starts have plummeted over the past two months and the latest ISM reading was the weakest in two years.
“We are in a rather amazing business cycle. We get economic data that fluctuates very quickly and it is very difficult to get an accurate reading of where the economy is at any time,” Dako said.
Catherine Edwards, an economist at Rand Corp.
Friday’s Labor Department report counted the jobs gained in July. The latest CPI reading covered June. The GDP reading that kicked off the recessionary hype described the activity that occurred between April and June – and will be revised twice.
“It’s a challenge for an economist, but also for the reader who wants to understand how vulnerable they are due to the economic downturn,” she said.
Labor market and production data have been telling different stories about the economy throughout the year. After six straight months of downturn, the economy is about $125 billion smaller than it was at the end of 2021, according to inflation-adjusted Commerce Department data.
However, employers hired 3.3 million new workers during the same period.
How can more workers produce fewer goods and services?
One explanation, Forman said, is that worker productivity today is lower than it was during the emergency phase of the pandemic, when companies struggled to keep producing needed orders with fewer workers.
In fact, nonfarm productivity in the first quarter fell 7.3 percent, the largest decline since 1947, according to the Bureau of Labor Statistics. He said preliminary results for the second quarter will be announced on Tuesday and are likely to show the biggest drop in two quarters in history.
These numbers may exaggerate the change. During the pandemic, companies may be able to maintain production with a workforce weakened by the coronavirus outbreak by urging or motivating remaining workers to work harder or for longer. But there is a limit to how long presidents can motivate people by citing emergencies.
“They’ve worked extra hard, but they’re not going to work extra forever,” Foreman said.
Likewise, the labor force participation rate usually rises when employers add jobs and the unemployment rate falls. But since March, it has declined, according to the Bureau of Labor Statistics.
Some Americans have retired rather than risk working during the pandemic. Others – mostly women – lack adequate childcare, staying at home with young children or other at-risk relatives.
A research paper prepared by economists at the Federal Reserve Bank of Richmond in April found that “the pandemic has permanently reduced participation in the economy.”
Americans’ participation in their early working years, aged 25-54, has recovered almost completely. But for those 55 and older, there has been almost no improvement since the initial drop at the start of the epidemic. And for younger workers, ages 20 to 24, participation is now lower than it was at the end of last year.
“I don’t think we have a good idea why other workers haven’t come back,” said Kathy Bostancik, chief US economist at Oxford Economics. “It’s just an extraordinary period.”