U.S. Hiring Remains Solid in July Amid Higher Interest Rates

The U.S. labor market remained resilient in July despite efforts by the Federal Reserve to dampen inflation. 

The Fed has imposed 11 rate hikes since March 2022, taking the target range for the federal funds rate up to 5.25% to 5.5% as of late July 2023. That takes benchmark borrowing costs to the highest level in over 22 years. Still, the pace of hiring is continuing to put upward pressure on wages and inflation. While the labor market outlook is uncertain, job growth remains in line with pre-pandemic levels, and unemployment remains among historically low rates. 

Employers added roughly 187,000 employees to payrolls in July 2023, according to the Bureau of Labor Statistics (BLS). That marked the second consecutive month of sub-200,000 job gains since December 2000. In addition, the nation’s recent job additions came in short of economist’s projections (+200,000 jobs) but in line with June’s gain of 185,000 jobs. 

Of note: Downward revisions to May 2023 data showed 25,000 fewer jobs were added than previously reported, down to 281,000 positions. The June 2023 growth number was also revised down, decreasing by 24,000 jobs to a total of 185,000 positions. With these revisions, employment gains in May and June combined were 49,000 jobs lower than previously reported.

While recent job gains were about half the monthly average of around 399,000 jobs added in 2022, employers are still hiring about the same number of workers than they did prior to the pandemic. From 2015 to 2019, the U.S. economy added an average of roughly 190,000 jobs each month. 

On an annual basis, the nation gained nearly 3.4 million jobs in July 2023. Although that was the weakest annual gain since March 2021, it was well above the average of around 2.4 million jobs added annually from 2015 to 2019. 

The U.S. economy has recovered all the net jobs lost during the COVID-19 pandemic. As of July, the nation had nearly 4 million more jobs (+2.6%) compared to the pre-pandemic employment level from February 2020. 

Jobs by Industry

Job growth in July was seen across most major industry sectors, but most notably in the Education and Health Services sector (+100,000 jobs). Solid gains were also recorded in Other Services (+20,000 jobs), Construction (+19,000 jobs), Financial Activities (+19,000 jobs), Trade, Transportation and Utilities (+18,000 jobs), Leisure and Hospitality Services (+17,000 jobs) and Government (+15,000 jobs). Job change was essentially flat in Mining and Logging. The only three industries to record job losses in July were Information (-12,000 jobs), Professional and Business Services (-8,000 jobs) and Manufacturing (-2,000 jobs).

Most major industries have recovered all the jobs lost during the COVID-19 pandemic downturn. Professional and Business Services has seen the best recovery, with today’s job count coming in nearly 1.6 million positions ahead of February 2020 numbers. Trade, Transportation and Utilities is also well ahead of pre-pandemic norms, with employment up by more than 1.1 million jobs.

Alternatively, some of the harder-hit sectors remain below pre-pandemic job counts. Despite recent gains, employment in the Leisure and Hospitality Services sector is still well below pre-pandemic employment counts, by roughly 352,000 workers. The Government sector is about 170,000 jobs behind February 2020 levels. Other industry sectors yet to recover all the jobs lost during the COVID-19 downturn include Other Services (-53,000 jobs) and Mining and Logging (-43,000 jobs).

Unemployment

The unemployment rate (U3 or headline unemployment rate which is seasonally adjusted) in July clocked in at 3.5%, down from the 3.6% rate in June. That was the second consecutive month that the unemployment rate ticked down and came in just above the lowest level since 1969. 

Since March 2022, the unemployment rate has been in a narrow range of 3.4% to 3.7%. At the onset of the pandemic, the unemployment rate climbed to 14.7% in April 2020. Prior to the pandemic, the unemployment rate clocked in at 3.5% to 5.7% from 2015 to 2019, averaging 4.4% during that period.

The total number of unemployed in the U.S. fell by 116,000 to roughly 5.8 million in July.

The unemployment rate for adult men decreased 10 basis points (bps) from June to July, falling to 3.3%. The unemployment rate for adult women was unchanged, at 3.1%. Meanwhile, the unemployment rate for teenagers climbed 30 bps from 11% in June to 11.3% in July.

Average Hourly Earnings

Average hourly earnings among employees on private nonfarm payrolls rose $0.14 (+0.4%) from June to July. That monthly increase took average hourly earnings to $33.74 in July. On an annual basis, average hourly earnings were up $1.41, a 4.4% increase year-over-year. Overall wage growth is now surpassing rising prices, as the Consumer Price Index (CPI) rose 3% in the year-ending June. The Fed’s target for inflation is currently at 2%.

Wage growth over the past year varied by industry. The largest increases in earnings from July 2022 to July 2023 were recorded among workers in Leisure and Hospitality Services (5.6%), Construction (5.4%), Manufacturing (5.1%), Mining and Logging (4.8%), Trade, Transportation and Utilities (4.7%) and Professional and Business Services (4.6%). The smallest increases were among employees in Education and Health Services (2.9%), Other Services (2.9%) and Information (3.8%).