The U.S. economy added 528,000 in July, and the unemployment rate edged down to 3.5 percent, the U.S. Bureau of Labor Statistics reported today. CEI experts explain why the good news is undermined by pressures of inflation and shrinking GDP – and Congress isn’t helping.
Ryan Young, CEI Senior Fellow:
“Another month of mostly good labor market news adds another wrinkle to ‘are we, or aren’t we’ recession debate. GDP is shrinking and inflation is high, yet the labor market remains strong. Whatever the National Bureau of Economic Research decides several months from now on whether we are technically in a recession, the economic problems we face right now are exactly the same.
“Congress continues down the wrong path by passing a massive corporate welfare bill in the CHIPS Act and is poised to pass an Inflation Reduction Act that would have no measurable effect on inflation but would raise both taxes and spending. Congress should instead spend less while addressing a labor force participation rate that still leaves the workforce about two million people shy of pre-COVID levels.
“Letting the Fed do its job of bringing inflation back to earth would make it easier for workers and employers to figure out what fair wages look like. Tariff relief would lower prices of both consumer goods and industrial inputs. Easing excessive licensing and permit requirements would make it easier for discouraged workers to find fulfilling work. Loosening immigration restrictions would boost business startup rates while helping to fill still-vacant agricultural and service jobs.”
Sean Higgins, CEI Research Fellow:
“Two-and-a-half years after the Covid-19 pandemic hit, the economy has returned to where it was before, with the Labor Department reporting unemployment at 3.5 percent, having added 528,000 jobs in July. The gains indicate the economy has thus far avoided a recession, at least as the term is commonly understood, but is not out of the woods yet.
“Demand for workers remains strong despite signs that employers have cut back in some areas. The department put the number of persons employed part time for economic reasons at 3.9 million, up more than 300,000 from the previous month. The shift was attributed to employers cutting back on hours, indicating businesses are trying to find ways to reduce labor costs without shedding workers. Having fought so long to fill vacant positions, managers are loathe to cut staff now. In short, they’re already doing what they can to ride this out.
“Congress should observe a policy of ‘do no harm’ when it comes to the recovery. The ill-named Inflation Reduction Act, which is little more than Build Back Better 2.0, is more likely to increase taxes and spending instead, which will do the broader economy no good.”