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The unemployment rate fell to 3.5%, matching its lowest level in the last 50 years

AILSA CHANG, HOST:

The U.S. job market blew past all expectations in July. Today we learned that employers added more than half a million jobs last month. That's more than twice as many as forecasters were predicting. The U.S. has now replaced all of the jobs that were lost in the early months of the pandemic. President Biden celebrated the milestone at the White House.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT JOE BIDEN: Today, there are more people working in America than before the pandemic began. In fact, there are more people working in America than any point in American history.

CHANG: The job market has proven remarkably resilient, but that could complicate efforts to fight inflation. And to talk more about that, we're joined now by NPR's Scott Horsley. Hey, Scott.

SCOTT HORSLEY, BYLINE: Good afternoon.

CHANG: Good afternoon. OK, so this jobs numbers shattered all expectations, right? What's going on here? - I mean, not that I'm complaining.

HORSLEY: Yeah. Forecasters had been expecting a slowdown in hiring, and instead, the pace just picked up. Just about every industry added workers last month, including restaurants and retailers and factories. Even construction companies were hiring in July, despite the slowdown in homebuilding that's followed rising mortgage rates. Jobs numbers for May and June were also revised up, and unemployment fell to just 3.5%, which is tied with the lowest in more than half a century.

CHANG: That sounds like great news, but what does this all say about the strength of the overall economy?

HORSLEY: Well, it says whatever doubts businesses might be having about the economy, they are still eager to hire. Now, last week's GDP report did show the economy shrank a little bit in the spring for the second consecutive quarter, and that had some people talking about a possible recession. We are getting some mixed signals in the economic data, but Daniel Zhao, who's with the job search website Glassdoor, says the job market just keeps humming along.

DANIEL ZHAO: I think there is still an ongoing debate about whether we are near a recession, but the labor market has been a continual bright spot. Today's report does help tamp down some recession fears.

HORSLEY: With 528,000 more jobs in July, that's half a million more people getting paychecks. That means more money to spend, and, of course, consumer spending is still the biggest driver of the overall economy.

CHANG: True, but what does all of this say about wages?

HORSLEY: Wages are going up, although they're still not keeping pace with prices. Average wages in July were up 5.2% from a year ago. That's a slightly bigger increase than we saw in June, and it's a sign the job market is still really tight. Businesses are still having to compete for workers. Now, on the one hand, bigger paychecks are good for employees, but they also have the potential to fuel higher inflation. The Federal Reserve had been hoping to see some cooling off in the job market, but that's certainly not evident in today's report. Now, one thing that's kind of mysterious - usually when you have a really strong job market like this, you expect to see more people coming off the sidelines looking for work. Instead, we actually saw people leaving the workforce in July for the second month in a row.

CHANG: That's so interesting. Well, if the job market, Scott, shows no signs of slowing down, how will that affect the Fed's efforts to curb inflation, you think?

HORSLEY: It probably means the Fed's going to keep raising interest rates pretty aggressively in an effort to tamp down demand and get prices back under control. You know, the central bank raised interest rates by three-quarters of a percentage point at each of its last two meetings in June and July. After today's jobs report, a lot more people expect to see a similar jumbo-sized rate increase at the next Fed meeting in September. But, you know, a lot can happen between now and then. We will get a new report card in on inflation next week. We know that gasoline prices have come down a lot over the last month and a half. But, of course, a lot of other prices are still going up.

CHANG: Yep. That is NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.