US unemployment reaches historic lows as inflation pressures persist

Karen Dynan (PIIE) and Wilson Powell III (Harvard Kennedy School)


US job growth was more than double what forecasters expected in July as the US economy added 528,000 jobs and the unemployment rate ticked down. The continued strength of the labor market has helped employment return to pre-pandemic levels, but a hot labor market could continue to put upward pressure on inflation.

July’s strong job growth reversed the slight slowdown in the preceding months and suggests the US is not currently in a recession. The unemployment rate is tied with its 50-year low at 3.5 percent, and, although employment growth is slower than last year, the current pace is still considerably faster than the pre-pandemic norm. Neither indicator is consistent with an economy in the grips of a sustained decline in activity.

The Federal Reserve, however, will be concerned by persistent signs of a tight labor market and the ongoing fast pace of wage growth. Employment growth is likely to ease in the coming months, reducing wage pressures—but the longer wage growth remains high, the more difficult curbing inflation will become.

This PIIE Chart is based on Karen Dynan and Wilson Powell III’s blog, No sign of inflation relief in July US jobs report.

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