Data published late last week by the Bureau of Labor Statistics indicates that the US economy added 528,000 jobs during the month of July. The unemployment rate ticked down one-tenth of a percentage point to 3.5 percent: the lowest level of joblessness that we’ve seen since the onset of the pandemic. Here are three takeaways from the July jobs numbers:

1. We’ve now fully recovered all of the jobs that were lost during the pandemic-induced economic downturn. As many Americans are working today as were working before February 2020.
2. A booming labor market could push inflation higher. Over half a million more Americans found work during the month of July. That’s great for them, but possibly bad for everyone else. Strong growth in the labor market can exacerbate inflation. With so many Americans already working, employers have to work harder to find new employees or keep the ones they have—which can mean paying them more. Workers taking home more pay means that prices for things (like gasoline, groceries, and haircuts) can keep rising. This spells further inflation, which the Federal Reserve will have to combat by raising interest rates further.
3. Economic data is sending us mixed messages about whether we’re headed to a recession. This blockbuster report on the labor market stands in stark contrast to the latest data on trends in the broader economy. We learned last month that total GDP—the amount of “stuff” being bought and sold in the US—fell in the second quarter of this year. While that GDP contraction suggests that the economy is weakening, the consistent growth in the number of employed Americans portrays an economy that’s strengthening. This divergence is highly unusual. Historically, declines in GDP have always been accompanied by sizable loss of jobs. These mixed messages have analysts scratching their heads, unsure of whether we’re heading for a recession.

Overall,
the latest data on jobs in the US paints the picture of a strong labor market,
one in which workers who want to work are easily able to find jobs and
employers must compete to find and retain talent. We generally celebrate
economic news that indicates a strengthening labor market because it’s good for
workers. But the news is less welcome today since it complicates the challenge
of reining in the inflation that is making life for Americans more expensive by
the day.

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