For months, as inflation has risen and the Federal Reserve has acted aggressively to contain it, one question has hung over the monthly employment reports: Has the labor market succumbed to gravity yet? The answer, so far, has been “No, mostly not.” But in July’s report, which arrives Friday, the answer is likely: “Yes, but it hasn’t hit the ground.” Since supply chain problems and the war in Ukraine sent prices soaring, the economy’s brightest feature has been strong job growth, with 6.3 million jobs added over the past 12 months. As of June, the United States was within 520,000 jobs of its pre-pandemic peak, held back by the decline in public employment. But that recovery has come under increasing pressure as inflation has eaten away at consumers’ spending power and darkened their moods, and as rising interest rates have begun to weigh on demand for big purchases like homes and cars. Inflation-adjusted gross domestic product fell for a second straight quarter, held back by slower inventory growth and a drop in housing investment. And, lately, there have been signs that economic headwinds are affecting the labor market as well. Jobs fell from record highs in the spring as demand for retail, leisure and hospitality workers eased. Initial claims for unemployment insurance rose to 260,000 a week last month from a low of 166,000 a week in March. LinkedIn hiring has slowed since April, particularly in construction and hotel accommodations. On average, forecasters expect Friday’s report to show the country added 250,000 jobs in July. Last month’s report showed a gain of 372,000 in June, on par with the previous three months. Polling and analytics firm Morning Consult, which surveys about 20,000 people a week, has seen an increase in the number of adults in the United States who report losing income due to layoffs or reduced hours. Consistent with research showing that people of color are the first to be affected when hiring slows, those increases were sharper among black and Hispanic workers. However, the rise in income losses was not concentrated in sectors sensitive to spikes in coronavirus transmission, as has been the pattern since 2020. “It’s not a Covid story – I think it’s a broader macroeconomic slowdown,” said Morning Consult chief economist John Leer. “People have been hoarding workers and, right now, we’re at a point where it makes sense to let them go because of the uncertainty of the business cycle.”
