The economy has created 528,000 new jobs. Why does it still feel bad?

The U.S. economy added 528,000 jobs last month while the unemployment rate fell to 3.5% — hitting pre-pandemic lows, the Bureau of Labor Statistics said on Friday.

But for many people, the economy may still feel something. It could be the 9% inflation rate. Or the two consecutive quarters of negative GDP data.

“It’s a mixed bag,” said John Leer, chief economist at Morning Consult. “Everything people think about the economy now, they’re likely to feel differently six months from now, especially if we see widespread job losses.”


Economists like Leer are already noting the prospect of higher unemployment as the Federal Reserve plans to raise interest rates further. As part of its so-called dual mandate, the country’s central bank is trying to balance jobs and price stability – and currently believes there is too much demand for labor and not enough stability in consumer prices.

At its next meeting in September, the Fed is likely to raise interest rates for the fifth time this year. The idea is to make borrowing more expensive to cool demand and try to reverse gains and bring inflation down to the central bank’s desired level of around 2%.

As Federal Reserve Chair Jerome Powell put it at his recent press conference:

“We think it is necessary to slow down growth. … We actually believe that we need a period of below-potential growth. … If we were able to get inflation back on track to 2% and eventually get there.”

In an email to clients on Friday, Seema Shah, chief global strategist at Principal Global Investors, said the Fed is likely to hike interest rates by another 0.75%.

“Not only is the labor market undoubtedly still tight, but wage growth is uncomfortably strong,” Shah said, implying that while high wages are good for consumers and their families, they lead to higher spending, higher demand and persistent inflation.

“The Fed has its hands full creating enough leeway that could ease price pressures,” she said.

Shah added that although all the jobs lost during the pandemic have now been recovered, “markets will pull through [Friday’s] number as a timely reminder that there are still many more rate hikes to come from the Fed.”

“[Interest] Rates climb above 4% – today’s figure should clear up any doubters,” Shah said. The current rate is between 2.25% and 2.5%.

While the Fed’s plan should eventually rebalance the economy, there will likely be pain in the labor market soon, Leer said.

“In the short term I think there is an unfortunate compromise,” he said.

Which parts of the economy will suffer this pain? Leer referred to the technology sector, where layoffs and hiring freezes are already widespread. He also expects a decline in some of the aggressive spending American consumers, particularly those with higher incomes, have been making on travel and leisure activities. That’s because some of that demand has been fueled by restricted travel during the pandemic lockdowns.

As a result, jobs in travel and hospitality, which were hardest hit during the pandemic, have rebounded the most – but could cool again if spending slows.

Jobs data released on Friday shows the sector added 96,000 new hires in July, but the industry still has 1.2 million fewer jobs than in February 2020.

Meanwhile, American consumers will continue to face an uncertain economy. In order to adapt, there is ample evidence that many workers take on multiple jobs, including driving for ride-sharing platforms like Uber, to make ends meet. Leer estimates that about one in ten workers needs to do this to earn extra money.

Powell, meanwhile, has said the process of getting the economy back on track will likely be painful.

“The process of getting there involves higher interest rates — so higher mortgage rates, higher lending rates and things like that,” he said at the July 27 news conference. “So it won’t be pleasant either. But in the end everyone is better off.” The economy has created 528,000 new jobs. Why does it still feel bad?

Fry Electronics Team

Fry is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – The content will be deleted within 24 hours.

Related Articles

Back to top button