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U.S. Job Growth Continues Despite Economic Slowdown

The U.S. economy continued to generate strong employment growth in July, but it showed signs of cooling as the Federal Reserve tried to control inflation.

American employers added 187,000 jobs last month, according to the Labor Department. This marked the 31st consecutive month of growth, and the unemployment rate fell to 3.5 percent, near a record low.

Revised figures for the previous two months changed the economic outlook from a barely perceptible slowdown to a clear deceleration. However, the report indicates that most job seekers can still find employment, putting upward pressure on wages.

Average hourly earnings increased by 4.4 percent from a year ago, slightly more than expected. This provides workers with more spending power despite rising prices.

According to Lydia Boussour, a senior economist at consulting firm EY-Parthenon, the labor market is gradually rebalancing, which explains why there is still some tightness. She believes that the economy is converging towards a more sustainable pace, even though wages and hiring rates don’t always move in tandem.

Despite an economic slowdown, overall economic growth has remained robust in recent months, and the possibility of a significant downturn seems remote. Many Wall Street banks and even the Federal Reserve staff economists in Washington have retracted their recession forecasts for this year. They believe that inflation can normalize without causing significant harm to workers and businesses.

A closer look at employment growth reveals that it now mainly occurs in the healthcare sector, which added 63,000 jobs in July. The leisure and hospitality industry, still recovering from the pandemic, added only 17,000 jobs. Other industries showed little to no growth, including manufacturing, transportation, and warehousing.

However, despite the slowdown in business activity, companies have not drastically cut payrolls, and layoffs have remained low. The temporary help services category, which experienced a surge in early 2022, saw the most job losses. This is a common trend as employers typically reduce contingent labor when their staffing needs stabilize.

Dana Peterson, chief economist at the Conference Board, believes that any soft spot in the economy will be manageable and short-lived. She doesn’t anticipate a significant decline in employment.

Companies like Power Curbers, a construction equipment manufacturer, are not considering layoffs despite a slowdown in demand. They are instead focusing on research and development projects, new machine development, and maintenance to keep their workforce busy and productive.

According to Kermit Baker, the chief economist at the American Institute of Architects, the worst may be over for sectors like residential construction, which experienced a slowdown in new contracts for design firms. He believes that the economic challenges faced by different parts of the country will vary.

Despite various factors clouding the employment picture, such as extreme temperatures affecting outdoor work, labor disputes, and rising defaults on risky loans, employment has surpassed pre-pandemic levels. The participation rate for people in their prime working years has increased, and a steady influx of immigrants has helped mitigate labor shortages.

Workers’ increased bargaining power in a tight job market has led to significant wage increases. This could keep wage growth elevated even as inflation subsides. Some economists believe that if worker productivity improves, wages can grow faster without fueling inflation.

The Federal Reserve will closely monitor data before its next meeting in September. It is widely expected that the Fed will maintain rates steady as long as there are no significant changes.

Looking ahead, there are risks on the horizon, including the resumption of student loan payments, vacant commercial office buildings, and defaults on risky loans. These factors may lead to meager monthly increases or even declines in employment towards the end of 2023, as forecasted by many economists. However, workers remain optimistic that they will quickly find employment if they lose their jobs, allowing them to be selective in their choices.

For example, Nathan Beaumont, who was recently laid off from a trucking company, isn’t too worried about finding another position. He prefers a job that offers more stability after experiencing frequent job changes in recent years.

In conclusion, despite signs of an economic slowdown, the U.S. job market continues to show resilience and sustained growth.

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