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The U.S. economy added 187,000 jobs in July, signaling a healthy gain but a cool-down in the labor market, fueling optimism about the economy’s ability to avert a downturn this year.

The unemployment rate fell to 3.5 percent, according to a Bureau of Labor Statistics report released Friday, near 50-year lows.

Combined with June’s downward revised jobs gain of 185,000, the past two months have marked the weakest level of job growth since December 2020, but the jobs numbers are still considered solid. May’s job gains also were revised downward notably in Friday’s report. That added to growing evidence that the labor market has softened in response to the Federal Reserve’s efforts to slow down the economy with more than a year’s worth of interest rate hikes.

The combination of continued solid job growth along with a marked easing of inflation, <a href="https://www.washingtonpost.com/business/2023/06/13/cpi-inflation-fed-interest-rate/?itid=lk_inline_manual_16" target=_blank>which was 3 percent in June</a>, has pushed aside fears of a recession anytime soon.

“The labor market is cooling ever so slightly each month as the U.S. economy proves resilient to very intense interest rate tightening,” said Jesse Wheeler, a senior economist at the business intelligence company Morning Consult. “There will be a recession at some point, but whether it’s in the immediate term is becoming less and less likely.”

<a href="https://www.washingtonpost.com/elections/candidates/joe-biden-2024/" target="_blank" class="contextual_link">President Biden</a> cheered on the low unemployment rate Friday as evidence that his plan to rebuild the middle class by injecting the economy with major spending packages is working.

“Unemployment near a record low and the share of working age Americans who have jobs at a 20-year high: that’s Bidenomics,” Biden said in the statement on Friday. “We’re growing the economy from the middle out and bottom up.”

The three major stock indexes  rose at the start of trading Friday, taking the moderate job gains as a sign that the Fed could back off more aggressive interest rate hikes when it meets again in September.

Another piece of good news for workers is that wages are still rising. Average hourly wage growth remained steady in July,<b> </b>rising 4.4 percent over the year, to $33.74 per hour. Fed policymakers are keeping a close eye on wage growth, because they worry that fast-rising wages will interfere with their ability to bring down inflation.

In July, job growth was fueled by strength in health care, social services, financial activities and wholesale trade. The health-care industry added 63,000 jobs, with big increases in hiring by hospitals and nursing-care facilities. Coming out of pandemic shutdowns, an increasingly older population is placing greater demand on the health-care sector for its services.

Financial services, where job growth has been slow if not flat this year, added 19,000 jobs, with the largest gains in real estate and rental and leasing, offsetting job losses in commercial banking. Wholesale trade also bounced back, notching 18,000 additional jobs in July after months of stagnation.

Employment in construction also continued to trend up, even as rising interest rates have weighed on home buyers. Retail, manufacturing, transportation and warehousing, as well as the information sector, which includes tech, saw little to no growth.

“What’s really stunning about what’s going on is that we’re seeing gains in some sectors offsetting losses elsewhere,” said Diane Swonk, the chief economist at KPMG US.

The federal government is helping buoy the labor market by pouring billions of dollars into infrastructure and green energy projects. And consumers also are helping a lot, with consumer confidence in July hitting a two-year high, according to <a href="https://www.conference-board.org/topics/consumer-confidence" target=_blank>the Conference Board</a>, a nonprofit business research organization.

All this optimism has silenced near-term recession fears and led the Atlanta Federal Reserve to update its economic growth forecasts, suggesting that  gross domestic product could soar in the third quarter to <a href="https://www.atlantafed.org/cqer/research/gdpnow" target=_blank>3.9 percent</a>, an annual rate not seen since the stimulus-fueled<a href="https://fred.stlouisfed.org/graph/?g=8eiT" target=_blank> pandemic recovery months of 2021</a>.

Infrastructure and green energy spending are powering the economy

Indeed, employers continue to hire at a rapid pace, despite cooling in interest-rate-sensitive sectors such as technology and manufacturing. Layoffs remain low, and the unemployment rate has hovered at historically low rates all year.

“The unemployment rate has remained low, because we’ve continued to see workers come off the sidelines and find jobs,” said Daniel Zhao, lead economist at the jobs site Glassdoor. “The return of immigration has also been a big factor in supporting labor force growth.”

The share of Americans participating in the workforce changed little in July, and remains below its pre-pandemic levels, in part because of the slow return of men to the labor market and the retirements of baby boomers. Still, the percentage of people between ages 25 and 54 who were working or looking for a job was close to a two-decade high in July, at 83.4 percent.

As private industry hiring has slowed somewhat, state and local governments, which had been strapped for workers since the pandemic, have been able to hire somewhat more easily. In June, state and local government had nearly 1 million job openings posted.

“The government is accounting for a larger share of job gains because, with private sector hiring slowing, they finally can compete for jobs,” said Julia Pollak, the chief economist at ZipRecruiter.

In hopeful moment, storm clouds over Biden economy appear to lift

Heather Burke, a county child-welfare worker in Westminster, Colo., had to take on responsibilities that were not part of her job description during the  pandemic as staffing levels plummeted in child services. This included making “intake visits” to homes to investigate allegations of child abuse that help determine whether children must be removed from their homes and be put into foster care.

“I had done that job for five years in the past, and it took years to recover from the trauma. Having to go back into intake was traumatic,” Burke said.

Over the past year, the staffing crisis has abated somewhat, and workers have returned to their normal roles, Burke said, as the agency has since been able to fill open positions and even create jobs, in part because they now have a strong union contract.

At the same time, a cash infusion from the federal government and related private investment in infrastructure and green energy projects, such as electric vehicles and airport upgrades, have been keeping the construction and manufacturing industry afloat. Under  Biden, the federal government has <a href="https://www.washingtonpost.com/business/2023/07/28/federal-infrastructure-spending-economy-manufacturing/" target="_blank">announced some $299 billion</a> and sparked another $503 billion in business investment that is trickling through the economy. Construction added 19,000 jobs, while manufacturing employment dipped slightly.

“Construction employment would have fallen this year absent this investment, rather than just rising slowly,” Pollak said.

 30 years of strikes: See how Hollywood’s walkout stacks up

To be sure, there are warning signs for the labor market on the horizon. The number of people <a href="https://www.washingtonpost.com/business/2023/07/11/part-time-jobs-economy/" target=_blank>working </a>in temporary help services fell by 22,000 in July. Losses in the sector are often a bellwether for economic downturns. Meanwhile, the Black unemployment rate, which hit a record low in April at 4.7 percent, was up to 5.8 percent in July. A wide body of research indicates that <a href="https://www.washingtonpost.com/business/2023/07/03/black-women-full-employment/" target=_blank>Black workers</a><a href="https://www.washingtonpost.com/business/2023/07/03/black-women-full-employment/" target=_blank> are the first</a> to lose jobs in economic downturns.

Other major risks are at play. Many economists say that the economy is still too hot to reach the targeted 2 percent inflation rate. That means that the Fed may continue raising interest rates, increasing the likelihood of a recession and widespread job losses in the future.

Strikes spiked in July, as workers seek higher wages to keep up with inflation

Workers still have leverage over employers in many sectors throughout the labor market, as has been on display in this summer’s wave of <a href="https://www.washingtonpost.com/business/2023/08/03/strikes-2023-summer-unions/" target=_blank>robust union</a> activity, including a pair of strikes that have shut down Hollywood. There are 1.5 job openings for each unemployed worker, according to a Labor Department report released Tuesday. Some employers are still desperate for workers, especially with specific, high-demand skills, such as public school science teachers and accountants.

Marie Young said she has not been able to fill three job openings at her accounting firm in Asheville, N.C., since January as demand for her services has boomed. To attract talent, Young has raised wages, started covering 100 percent of employees’ health-care costs and brought in temp agencies to find workers. But she’s had little luck.

“Younger people aren’t wanting to go into this business, with its long hours, liabilities and the ever-changing tax laws,” said Young, who has run her business for 30 years and has eight accountants and bookkeepers on staff.

“Things have changed,” she continued. “People ask us constantly, ‘Can we work remotely?’ But in our industry, our clients don’t want their data going out of this building, so we say, ‘Nope.’”

Newswomen’s Club of New York's Best New Journalist Award, 2021

Sidney Hillman Foundation's Sidney Award, 2021

University of Chicago, BA in Comparative Literature

New York University, MA in Journalism and Latin American Studies

Lauren Kaori Gurley is the labor reporter for The Washington Post. She previously covered labor and tech for Vice's Motherboard. 

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Economy adds 187,000 jobs in July, in strong but moderating growth 

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