July 2022 Market Brief: Important Takeaways From July's Labor Market and Economy Report

It's…Complicated?

Keeping up with the economy and labor market is sort of like keeping up with a celebrity relationship. Just when you think things have cooled, they heat up again.

Before the Feds released July's labor market data, experts predicted a cool down. Afterall, several metrics supported it: contracted economic output through June, sky-rocketing inflation, falling consumer sentiment, and steep interest rate increases.

But nearly half a million jobs added to the economy in July and an unemployment rate at pre-pandemic levels—matching a 50-year low— is hardly a cool down.

Either the Fed's job of landing that airplane in an earthquake is looking more likely, or it just got a whole lot harder. Because while inflation eased slightly in July—8.5 percent down from 9.1 percent in June—it's still near 40-year highs.

High-level View of the Labor Market

As companies continue to recoup workers lost during the pandemic and hire for seasonal gigs, experts predicted modest increases in the number of jobs added during July. However, they didn't predict a windfall of them—528,000 to be exact.

• The gains were spread across all industries, with hard-hit Leisure and Hospitality leading the gains at 96K jobs.
• Professional and business services added 89K jobs, and Healthcare 70K.

Average hourly wages increased 5.2 percent in July. On the year, annual wage gains have exceeded five percent every month as employers attempt to lure and keep workers in this tight market. At 3.5 percent, July's unemployment rate matched a half-century low and hit pre-pandemic levels. Quit rates remained unchanged at 4.2 million and layoffs and discharges fell to 1.3 million.

If this is a recession, it's certainly not our parents' recession.

A Closer Look at Employment Trends in Engineering and Sciences

Unemployment rates in engineering and sciences labor categories and industries continue to fall well below the national rate. Currently, there are between 0.2 to 0.3 available workers to fill every one job opening in these disciplines.  

• In July alone, the Utilities industry posted 970 job openings for electrical engineers, 569 for civil engineers, and 364 for industrial engineering technicians. Between the 1.1 percent unemployment in this industry, the 0.9 percent unemployment rate in the Architecture & Engineering labor category, and the massive initiatives by the DOE to advance and support affordable, smart, and sustainable clean energy, the demand for these workers will remain tight well into the future.
• Sluggish supply chains continue to impact manufacturing activity in Consumer & Industrial Products. Output slowed slightly in July as materials and workers remained in-demand. Relief could be on the way with the passage of the CHIPS and Science Act, at least for those waiting on semiconductors. The new law contains “more than $50 billion worth of funding” for semiconductor manufacturing and R&D within the U.S—good news for the supply chain if businesses can find the workers.
• The CHIPS and Science Act will also extend into Scientific and Biotech Research and Development, which, according to a report released by CBRE, experienced a record 13.5 percent year-over-year job growth in Q2 2022. Registered clinical trials have grown by 30 percent (+98K studies) since 2019, which might explain why "Clinical Trials" has been the most in-demand skill among R&D job postings since the end of 2019.
• In the Automotive industry, rumors are swirling about Ford's plans to cut up to 8,000 jobs – not because of a recession, but an intentional effort to boost electric vehicle investments and profits. In-demand skills are shifting in this industry as manufacturers look to build EV and hybrid fleets. For example, among the "Big Three" auto makers, job postings that include computer science skills have multiplied 5x since 2018. Postings that include software development and analysis skills have also increased.

Connecting the Dots

1. Labor force participation. Another metric receiving attention from July's labor report is the declining labor force participation rate, down .1 percent in July. A couple million people are still missing from the workforce. Some experts point to lingering health issues (long COVID), others to childcare constraints. But Jeffrey Bartash, a reporter for Marketwatch, suggests the decline isn't all that complex or surprising. "For one thing, almost all the decline in labor-force participation is concentrated in people ages 16 to 24 and above 65 — the young and old. By contrast, the share of the working-age population in the prime of their life (ages 25 to 54) is quite stable at 82.4% and not far from the pre-pandemic peak." In other words, maybe the trends we've been watching are now the norms, and companies will have keep finding creative ways to get work done.
2. Inflation. It may not be all that creative, but higher pay has been effective for employers looking to lure and keep workers. However, despite these wage increases, inflation has caused "real earnings" (adjusted for inflation) to fall 3.0 percent year over year. Not to mention, those higher wages lead to higher costs of doing business, which lead to higher prices for goods and services, also known as inflation. Breaking this cycle is exactly what the Fed is attempting to do with their steep interest rate hikes. If they can deter businesses from borrowing and expanding, and people from buying or financing, they believe they can slow the economy enough to bring down the cost of making and providing goods and services (i.e. inflation). The problem for the Fed is that the labor market keeps saying no, so inflation remains high, and the cycle continues.
3. Middle class squeeze. A recent article in the Wall Street Journal highlights the impact inflation is having on the middle class. According to the Fed, people earning between $75,301 and $127,300 per year have lost more money in savings and investments than those who make more than them. Now, with their savings eroded, people are taking on greater debt for necessities—auto loans, mortgages, groceries, bills.

Past Issues:

• January 2022
• February 2022
• March 2022
• April 2022
• May 2022
• June 2022
  
  

_References:

_{Actalent's July 2022 Economy and Labor Market Report synthesizes information from a variety of sources including the United States Bureau of Labor Statistics survey results, Lightcast (formerly Emsi-Burning Glass), media reports, industry intelligence, company earnings reports, and external labor market data. The full set of data is included as a companion to this article.}