For months, as inflation has risen and the Federal Reserve has acted aggressively to tamp it down, a question has hovered over the monthly employment reports: Has the labor market succumbed to gravity yet?
The answer, so far, has been, “No, mostly not.” But in the July report, arriving on Friday, the answer is likely, “Yes, but it hasn’t crashed into the ground.”
Ever since supply chain problems and the war in Ukraine sent prices skyrocketing, the brightest feature of the economy has been robust 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 prepandemic peak, held down by a decline in government employment.
But that recovery has come under increasing strain as inflation has eaten into consumers’ spending power and darkened their moods, and as rising interest rates have begun 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 growth in inventories and falling residential investment.
And, lately, there have been signs that the economic headwinds are affecting the labor market as well. Job openings have fallen from their record highs in the spring, driven down by waning demand for retail, leisure and hospitality workers. Initial claims for unemployment insurance crept up to 260,000 a week last month from a low of 166,000 a week in March. Hiring on LinkedIn has been slowing since April, particularly in construction and hotel accommodations.
On average, forecasters expect the report on Friday to show that the nation added 250,000 jobs in July. Last month’s report showed a gain of 372,000 in June, on par with the three previous months.
The polling and analytics firm Morning Consult, which surveys about 20,000 people a week, has noticed an increase in the number of adults in the United States who are reporting having lost income because of layoffs or reduced hours. Consistent with research showing that people of color are the first to be affected when hiring slows, those increases have been sharpest among Black and Hispanic workers.
The uptick in income losses hasn’t, however, been concentrated in sectors sensitive to spikes in coronavirus transmission, as was the pattern since 2020.
“It’s not a Covid story — I think it’s a broader macro slowdown,” said Morning Consult’s chief economist, John Leer. “People were hoarding workers, and, right now, we’re at a point where it makes sense to let them go because of business cycle uncertainty.”