Economist Noah Williams Comments on the June Jobs Report
“Recession” is the word on the lips of economic analysts and forecasters, and while there are clear signs of slowing—if not stagnant—activity in the rest of the economy, the labor market expansion continues at a solid pace. The Bureau of Labor Statistics reported this morning that the US added 372,000 jobs in June, with the unemployment rate holding at 3.6% for the fourth month in a row. Although inflation and higher interest rates have weighed on consumer spending, business investment, and caused turbulence in financial markets, the labor market remains historically tight with job openings outnumbering unemployed workers by a factor of roughly two to one. Therefore, even as output growth has slowed, the long-standing excess labor demand has resulted in continued job gains at only a slightly slower pace than earlier in the year.
With the first quarter decline in GDP and forecasts of a further drop for the second quarter, some analysts have declared that the US is already in a recession. But if the US economy is in or about to enter a recession, it would be a recession of a vastly different nature than that of other historical downturns. Recessions have largely been characterized by declines in employment, typically starting with slowed hiring by businesses. Such slowing has yet to happen on a broad scale.
While there are some signs that inflation pressures have eased, today’s report also suggests that the Federal Reserve will continue with its planned interest rate increases for the foreseeable future. After being late to begin the tightening cycle, policymakers will be loath to abandon their commitment to tightening until there is clear evidence of a substantial reduction in inflation or slowing of the labor market.
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Noah Williams is an adjunct fellow at the Manhattan Institute and the Juli Plant Grainger Professor of Economics and director of the Center for Research on the Wisconsin Economy at the University of Wisconsin–Madison.