Strong US Jobs Market Belies Growing Recession Risks

Some observers of the US economy believe that the country is already in recession. This is supported by a negative GDP print in the first quarter of this year and what may be a disappointing reading in the second quarter. However, it takes more than a subpar overall GDP growth number to signal recession. A plunge in consumer and business spending (i.e., domestic demand) and weaking of the labor market would be signs of recession.

The good news is that the continued outperformance of US labor market suggests that the economy is not yet in recession. The labor market continues to be strong, with an outsized 372,000 jobs added in June 2022, after an increase of 384,000 jobs in May. The unemployment rate remains extremely low at just 3.6 percent – well below the threshold for full-employment (4.4 percent), and claims for unemployment insurance, which are a proxy for layoffs, remain few. Wages are also rising for most workers, supporting household incomes. (See Solid Job Growth Continues Amid a Slowing Economy.) 

Despite gathering economic headwinds there is still no clear indication that the labor market is cooling. However, this could change in the months ahead as other economic indicators have already signaled that economic activity is slowing amid rising inflation and Fed interest rate hikes. As a result, hiring may decelerate during the remainder of the year, but for now, the labor market remains robust.