For months, as inflation has surged and the Federal Reserve has acted aggressively to suppress it, a question has hovered over monthly employment reports: Has the labor market succumbed to gravity yet?
The answer so far has been, “No, usually not.” But in the July report, which arrives Friday, the answer is likely to be, “Yes, but it didn’t fall into the ground.”
Since supply chain problems and the war in Ukraine rocketed prices, the economy’s most notable feature has been robust job growth, with 6.3 million additional jobs in the past 12 months. In June, the United States had fewer than 520,000 jobs from its prepandemic peak, which has been quelled by a decline in government employment.
But that recovery is coming under increasing pressure as inflation has eroded consumers’ purchasing power and clouded their moods, and as rising interest rates begin to weigh on demand for large purchases like homes and cars. Gross domestic product, adjusted for inflation, declined for the second quarter in a row, held back by slower inventory growth and declining housing investment.
And lately there have been signs that the economic headwinds are also hitting the labor market. Job openings have fallen from their all-time high in the spring, driven by declining demand for retail, leisure and hospitality workers. Initial unemployment insurance claims rose to 260,000 a week last month, from a low of 166,000 a week in March. Hiring on LinkedIn has been slowing down since April, particularly in construction and hotel accommodations.
On average, forecasters expect Friday’s report to show the country added 250,000 jobs in July. Last month’s report showed a gain of 372,000 in June, comparable to the three previous months.
The polling and analysis firm Morning Consult, which surveys about 20,000 people a week, has noted an increase in the number of adults in the United States reporting lost income due to layoffs or reduced hours. Consistent with research showing that people of color are the first to be affected when hiring slows, these increases were strongest among black and Hispanic workers.
However, the increase in income losses is not concentrated in sectors prone to spikes in coronavirus transmission, such as the pattern since 2020.
“It’s not a Covid story — I think it’s a broader macro slowdown,” Morning Consult chief economist John Leer said. “People were hoarding workers, and right now we’re at a point where it makes sense to let them go because of the uncertainty about the business cycle.”