No Sign of Recession as Job Market Stays Hot

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By Yuval Rosenberg

Good Friday evening. Before you log off for
the weekend, here's what you need to know.

The
assassination of former Japanese Prime Minister
Shinzo Abe shocked the world. President Joe Biden said in a
statement Friday morning that he was "stunned, outraged, and deeply
saddened" by the tragic shooting. Biden on Friday also signed an

executive order aimed at protecting abortion
access. And the government’s latest monthly jobs report topped
expectations and called into question all those forecasts of
recession. More on that below.

No Sign of Recession as Job Market Stays Hot

Payrolls grew by 372,000 in June, the Labor
Department announced
Friday, easing fears over a potential recession while clearing the
way for another round of interest rate hikes by the Federal Reserve
later this month and beyond.

The unemployment rate held steady at 3.6%, as analysts expected,
while the alternative U6 measure of unemployment, which includes
discouraged and some part-time workers, fell sharply to 6.7% — an
all-time low that suggests the labor market remains exceptionally
tight.

Wages grew at a 5.1% annual clip in June, slightly above
expectations but nevertheless a decline from the month earlier,
when the annual rate hit 5.3%. The results suggest wage pressures
are easing and provide little support for the view that inflation
is being driven by workers’ demands for pay increases.

One disappointing number in the report was the labor force
participation rate, which ticked lower to 62.2%. Still, that points
to tighter labor market conditions as some workers move to the
sidelines.

“The U.S. labor market is defying gravity,”
said Becky Frankiewicz of the staffing firm
Manpower Group. “Fears of a possible recession stoked by inflation
and an aggressive Fed are eclipsed by the simple reality that
employers can’t hire fast enough to meet demand.”

Private employment recovery: With private sector
employment 140,000 higher in June 2022 than in February 2020, the
economy has now recovered all the private sector jobs lost during
the pandemic.

Overall employment, however, is still slightly lower, down
524,000, or 0.3%, relative to early 2020, due to a shortfall in
public sector employment of roughly 664,000.

Julia Pollak, chief economist at ZipRecruiter, said in a note
that the economy is creating lots of high-quality, well-paying
jobs, especially in services. At the same time, job growth was
broad-based in June, with gains recorded in retail, manufacturing
and construction as well as areas like business management,
scientific research and the information sector.

No recession in sight as the Fed tees up another hike:
While some other economic data have raised concerns of a downturn,
the strong jobs report “appears to make a mockery of claims the
economy is heading into, let alone already in, a recession,”

said Andrew Hunter of Capital Economics. RSM’s Joseph
Brusuelas emphasized the point,
writing that “an American economy in free fall
does not tend to produce 372,000 jobs in any given month.”

Many analysts said the report underscores the need for the Fed
to continue to move aggressively as it tightens monetary
conditions. “The labor market is very hot,” Jeffrey Rosenberg of
BlackRock
told Bloomberg. “The Fed has to do more.”

“After this report, you can pretty much count on 75 basis points
in July,” said Jim Caron of Morgan Stanley Investment Management.
“The job market is strong and it’s not giving up any growth.”

Still, some analysts are worried that the Fed will push too hard
and drive the economy into a recession as it looks to curb
inflation. “There is a feeling of Wile E. Coyote running over the
cliff, the economy is slowing, Fed hikes will almost certainly lead
to a hard landing, but with employment remaining this strong, and
next week’s [inflation report] likely to stay high, the risk that
the Fed will hike higher and further than they should increases,”
said Steve Chiavarone, senior portfolio manager at Federated
Hermes.

Quotes of the Day

“Right now, the labor market is not the problem child, it is
being the well-behaved kid, so the Fed thinks they can kind of
ignore the labor market right now and focus all on
inflation.”

— Victoria Greene, chief investment
officer at G Squared Private Wealth,
commenting on the June jobs report.

“Nothing epitomizes market failures more than the cost of
insulin. Many Americans experience out-of-pocket costs anywhere
from $300 to $500 per month for this lifesaving drug. California is
now taking matters into our own hands.”

– California Gov. Gavin Newsom, a Democrat, announcing in a
video
posted to Twitter Thursday that his state would begin making its
own insulin “at a cheaper price.” Newsom said the state budget he
just signed for 2022-2023 includes $50 million for the state to
develop “low-cost insulin products” and another $50 million will be
used for an insulin-manufacturing facility that Newsom said would
“provide new, high-paying jobs and a stronger supply chain for the
drug.”

Number of the Day: 3.1

The national average price of a gallon of regular gasoline
fell 3.1 cents from Thursday to Friday, according to AAA. That’s the
largest one-day drop since 2008, and gas prices have now fallen for
24 straight days — though they remain high, at an average of $4.72
a gallon, down from $4.96 a month ago but up from $3.14 a year
ago.

Chart of the Day: The Incredible Shrinking IRS

The Urban-Brookings Tax Policy Center this week
highlighted how the Internal Revenue Service’s workforce has shrunk
relative to the U.S. population. In fiscal year 1991, the agency
had 451 employees per million U.S. residents. By last year, that
figure had fallen to 237.

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