June Jobs Report: Economy Rising Steadily Out of Pandemic Collapse

By Bernard E. Anderson, Ph.D
Senior Economic Advisor National Urban League
Whitney M. Young, Jr., Professor Emeritus, The Wharton School, University of Pennsylvania

(July 8, 2022) -- The U.S. economy created 372,000, a strong report showing that the economy continues to move steadily along rising out of the collapse that was generated by the pandemic in February 2020.

Strong job creation bolsters consumer spending that remains high despite elevated inflation. The numbers suggest that Federal Reserve’s interest rate increases slowed the GDP growth rate somewhat, but the impact on inflation will be known when the Consumer Price Index is reported next week.

The overall unemployment rate remained unchanged at 3.6%, but the persistent Black/white unemployment ratio, which hovers at 2-to-1 1, narrowed to 1.76-to-1 due to a slight increase in the white rate, from 3.2% to 3.3%, and a more significant decrease in the Black rate, from 6.2% to 5.8%. A closer examination of industry trends is needed to explain the narrowing gap.

Labor market tightness is easing as job openings and quit rates decline, which will reduce employer pressures to raise wages, thereby further reducing wage/push inflation. Inflation is hitting low- and middle-income households hardest, especially at gas stations and in grocery stores. Housing markets also are in turmoil. Residential construction and housing starts are down, reducing supply and driving prices upward. Higher mortgage rates constrain purchases, especially for new homeowners. Speculators are buying properties and raising rents, increasing evictions in many communities. Municipal authorities are adopting remedial measures to limit evictions but there is little evidence that such policies have a major impact in easing the housing pain.

The major question is whether the Federal Reserve can manage a “soft landing” in reducing economic growth but not stoking a recession and spiking a rise in unemployment. There have been twelve recessions since World War II, varying in size and duration. The worst was the financial crisis induced recession in 2007 to 2009, the Great Recession. The Federal Reserve managed a “soft landing” only once, following the contraction that was generated by the tech bubble burst in 2001.

The rapid adoption of counter cyclical monetary and fiscal policies in response to the pandemic in 2020 – such as lowering interest rates near zero and the $1.9 trillion economic rescue package -- helped the economy bounce back quickly from the Covid 19 contraction. But the recovery in business activity was uneven, producing a “K” shaped recovery that benefitted upper-middle- and high-income households more than middle- and low-income households. That has exacerbated income inequality , including racial income inequality.

There is a vigorous debate among economists over the direction the economy is likely to take in coming months as the Federal Reserve fights inflation: will the country experience a deep recession or a moderate decline in business activity and little rise in unemployment ?   Projected monetary policy, easing supply chain bottlenecks, and declining labor market tightness suggest that the rebalancing of aggregate supply and demand will generate a short, shallow recession in mid-to late 2023. Unexpected shocks, of course, would upset that projection, as would a prolonged war in Ukraine.