Instead of continuing to slow down as expected, the U.S. jobs market exploded in July - adding 528,000 positions and finally recouping all of the jobs lost during the pandemic.
The figures from the latest Bureau of Labor Statistics report represent a dramatic reversal from recent months. June added just 372,000 jobs, down from 390,000 in May and 428,000 in April.
Unemployment dropped slightly in July to 3.5%, down from 3.6%, where it sat for several months.
Economists surveyed by the Wall Street Journal expected the number of jobs added to drop to 258,000 in July and unemployment to hold at 3.6%.
"Whoa. The July job gain was surprisingly big - back over 500k and consistent with the strong job gains of the past year +," tweeted Mark Zandi, chief economist at Moody's Analytics.
"There hasn't been much of any slowing in the job market. This should dash any concern that the economy is already in recession."
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Numbers give off mixed signals
Even before the latest numbers were released, Federal Reserve Chairman Jerome Powell argued the strong jobs market is a sign the U.S. economy hasn't yet fallen into a recession.
"There are just too many areas of the economy performing too well. I would point to the labor market in particular," Powell told reporters last week after the Fed decided once again to raise its benchmark interest rate.
While the country has seen two consecutive quarters of negative GDP growth - one of the typical signals of a recession - economists say current conditions are anything but typical.
"When you have job growth at the level we've seen it, that's simply not something we've seen ever before when we get a recession," Brad McMillan, chief investment officer at Commonwealth Financial Network, tells MoneyWise.
"So …if we get a recession that looks anything like what we've seen in previous history, we have to see job growth go down."
The numbers also go against a recent trend of layoffs in the tech sector. Several large companies, including Shopify, Netflix and Robinhood, have slashed their workforces.
For now, it doesn't look like that's spreading into other sectors, says Bledi Taska, chief economist at Lightcast.
"The signal that we got today, this week, is that, even if there are some of these layoffs, a) it's not widespread in the economy, and b) these people probably are landing on their feet pretty fast, because there's a high demand for them across the industry."
Pay is increasing, too
The leisure and hospitality sector led the way in July adding 96,000 jobs, while professional and business services added 89,000.
Health care jobs rose by 70,000, government jobs increased by 57,000, and the construction sector added 32,000 jobs.
Wages also grew in the month of July.
Average hourly earnings jumped half a percent from June and up 5.2% from a year ago - though that's still not keeping pace with today's runaway inflation, which hit 9.1% in June.
Expect more interest rate hikes
While the surprising jobs report has tempered expectations of a recession for now, many now expect the Fed to hike interest rates even higher in a continuing attempt to bring the inflation rate down.
"The risk to the outlook right now is not recession but inflation. That's why restoring price stability remains paramount and it's why the policy rate will increase by at least 50 basis points in September and likely needs to go to 4% or higher," tweeted Joseph Bruselas, principal and chief economist at audit and tax consulting firm RSM.
The S&P 500 and Dow Jones Industrial Average fell Friday morning after the release of the jobs report.
Investors are seeing the stronger-than-expected jobs gains as a sign that the Fed will continue to increase interest rates in September.
McMillan - who says the jobs numbers show a recession is less likely or at least further away - wrote on his blog Friday morning that rising rates with a strong market is overall a positive.
"But we can certainly expect some turbulence in the short term as markets adjust," he said.
Taska agrees the U.S. economy isn't in the clear yet, but Americans may take this chance to relax a little.
"That doesn't mean that we're not going to have a slowdown of the economy, it doesn't mean that there's still not a possibility of that some of that happening in 2023 - the situation in Ukraine is definitely the big elephant in the room - and we still have a winter to come," Taska says.
"But at this moment, at least, and for probably the remainder of the year, I'm not super worried."
July's consumer price index numbers will be released on Aug. 10, which will give a clearer picture of what the Fed may do come September.
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