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Unexpectedly Strong Payrolls Showing Brings Unemployment Rates To Pre-Pandemic Highs; Complicates Recession Narrative

Unemployment rates very low and 500k jobs added to the economy.

On the first Friday of every month, the U.S. Bureau of Labor Statistics (BLS) releases a number of datapoints which offer insight into America’s job market. Among them are markers such as job openings, new payrolls, average workweek, and wages.

The first two – job openings and new payrolls – are arguably among the most important economic markers in the U.S. economy. Along with initial & continuing claims data, which offers a glimpse of unemployment rates or how many people filed for (or continue to be on) unemployment, the average investor can glean a lot about the health of the economy.

Last month, the U.S’s latest GDP data showed what many had feared – that the U.S. had fallen into a technical recession, which is defined by two quarters of GDP shrinkage. However, the term “recession” has become a point of both political and financial discussion because of an observable disconnect between GDP growth and the job market (in theory, both should rise and fall together.)

Related: This Big Tech Triple Threat Offers Optimism Amid Recession Fears.

That disconnect continues to perplex investors. The latest payrolls report from the BLS, which was released this morning, shows that employment rose by 528,000 in July. That was more than double what analysts polled by were expecting.

Economic Contradictions

Those kinds of payrolls are objectively impressive; even more impressive considering that we are in a technical recession. And when you pair those numbers with the record-low continuing claims numbers that we’ve been seeing, these highly-positive figures contrast dramatically against the negative GDP growth from last quarter.

That’s one reason why the White House, knowing the politicization of the term “recession”, has vehemently rejected the notion that we are in one. They’ve leaned on the strong payroll data and low claims which we have seen to support that case. Political opponents – and people who live by their very specific definitions – argue that it’s obvious we’re in one: the negative GDP speaks for itself, inflation is at 40-year highs, and working people are working multiple jobs to make ends meet.

In reality, there’s some truth to both cases: prosperity in the U.S. has not been evenly distributed, but now that the U.S. unemployment rate has recovered to pre-COVID levels, this entire argument is likely to find new fuel. All-in-all, June was the best month for the U.S. labor market since February 2022 – during which the U.S. unemployment rate fell to 3.5%. That matches the “50-year low reached just before the pandemic took hold,” according to AP News. 

 There are other bones to pick, though: labor participation is still down compared to where it was in February 2020. That has been credited to retirees, deaths, and a rising wave of youth who cannot be employed yet. 

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