A rapid run-up in interest rates, uncomfortably hot inflation, and banks getting stingier with loans: The makings of a recession have been in place so long that many consumers believe we are already in one.
But the economy chugs forward nonetheless.
The Labor Department said Friday that employers added 187,000 jobs last month. The pace of hiring continued to slow from previous months but remains hale compared with pre-pandemic rates.
Unemployment dipped one-10th of a percentage point to 3.5 percent in July, within the tight range where it’s held since March 2022.
The report wrapped up a week in which data showed a welcomed bounce back in worker productivity, little evidence of any pick-up in layoffs, and steady, if unremarkable, results across the economy. Last week, the Commerce Department said the output of goods and services expanded at a quicker-than-expected annualized rate of 2.4 percent in the second quarter.
“The upshot of today’s #JobsReport? It’s yet more evidence that we can have a soft landing,” Heidi Shierholz, an economist and president of the Economic Policy Institute, said in a post on X, the social media site formerly known as Twitter.
When the Federal Reserve began hiking interest rates 18 months ago in a bid to tame inflation, the chances of a soft landing — a cooling of the economy without a sharp rise in unemployment — seemed remote.
Now, with each passing month, confidence is building that a severe downturn can be avoided.
On Tuesday, Bank of America economists joined the list of forecasters backing off previous recession predictions.
“Growth in economic activity over the past three quarters has averaged 2.3 percent, the unemployment rate has remained near all-time lows, and wage and price pressures are moving in the right direction, albeit gradually,” Bank of America economists said.
The reassessment: So why has the recession many had forecast yet to arrive?
In a LinkedIn post this week, Gregory Daco, chief economist at consulting firm Ernst & Young, laid out what he dubbed “the seven wonders” of a strange and unpredictable post-pandemic global economy.
At the top of his list: Employers are “hoarding” workers.
After struggling mightily to staff up following COVID shutdowns, firms are focused on “training and retaining their valued talent pool, even as economic activity slowed,” Daco wrote.
That has kept layoffs from surging and pushed the jobless rate to historically low levels.
Another key factor: the financial stimulus the federal government pumped into the economy during the pandemic. The aid bolstered consumer spending, though it also contributed to the surge in inflation.
The pandemic relief is long gone, but family savings are still elevated and debt levels are low. Consumer spending, which powers about two-thirds of the economy, is holding up.
The Fed’s strong medicine of high interest rates has broken the inflation fever without breaking the job market.
The consumer price index rose at an annualized 3 percent pace in June, down from a peak of 9.1 percent a year earlier. The jobless rate is back to near 50-year lows.
The recent rise in gas prices underscores the reality that inflation could flare up once more. The tech and temporary help sectors are cutting workers, and hiring in the big hospitality and leisure industry has tailed off.
Fed chair Jerome Powell hasn’t declared victory. While Friday’s job numbers could take pressure off him and his fellow policymakers to raise interest rates when they next meet in September, inflation reports for July and August might paint a changing picture.
The news is good, but the plane hasn’t landed. Buckle your seatbelt and put the tray table up. Captain Powell has started the final descent.