July 2023 Labor Market & Economy Report: Inflation rises slightly; unemployment stays low

After dropping for twelve straight months, inflation rose slightly from 3.0% in June to 3.2% in July.

Higher housing costs last month accounted for 90% of the overall increase, according to the Bureau of Labor Statistics, with pricier auto insurance premiums being the next biggest factor.

Gas prices also went up 0.2% in July but are down 19.9% year-over-year. Other than electricity services, which rose 3.0%, overall energy costs are lower by 12.5% compared to this time last year.

Unemployment, meanwhile, remained seemingly unshakable, dropping slightly from 3.6% to 3.5% – the same level it was at one year ago.

Based on the resiliency of the labor market, the Fed announced earlier in July that it is no longer predicting a recession in 2023, a notable (and positive) shift from April.

Further economic slowdown, however, is still expected; this after the Fed increased interest again last month by .25% (that is the 11^th rate hike since March 2022, bringing current rates to a 22-year high of 5.5%).

Richmond Federal Reserve President Tom Barkin, quoted in a recent story by the Wall Street Journal, said the impact of the rates hikes “should start to really hit around now.” Barkin's comments are timely given banks reported having tighter standards and weaker demand for commercial, industrial, and household loans in Q2, with more of that tightening expected to continue through the end of the year.

Yet, signs remain – despite the Fed's strategic cooling – that the labor market is still strong:

• Labor force participation held at 62.6% for the fifth straight month.
• Job openings remained statistically unchanged at 9.6 million.
• Layoffs were unchanged at 1.5 million.
• Average hourly earnings in 2023 have grown each month at a rate of 4.4% year-over-year
• Real average hourly earnings (wages adjusted after inflation) increased 0.3% from June to July, and 1.1% year-over-year.
• Business labor productivity went up 3.7% year-over-year in Q2 (output increased 2.4%)
• Unit labor costs were up 1.6%
• Labor supply remains steadily low with 0.6 unemployed persons per job opening

Preliminary signs did emerge in July, however, that labor demand could be starting to cool off:

• 187,000 nonfarm jobs were added to the economy in July, this after June's number was also revised downward from 209,000 to 185,000. Both of those numbers are the lowest since December 2020, but still well above the pre-pandemic levels (for comparison, the economy was adding 137,500 jobs per month in 2019).
• Job quits also fell from 4.1 million in May to 3.8 million in June, which is also still well above pre-pandemic levels (for comparison, 3.6 million job quits in July 2019 was a 6-year high at the time).
• Hires decreased from 6.2 million to 5.9 million. The hiring rate stayed the same, 3.8%, according to BLS JOLTS data.
• Average weekly hours worked decreased 1.3 percent (first decline since Q2 - 2020)

A Look at Employment Trends in Engineering and Sciences

Actalent's monthly Labor Market & Economy Report offers a comprehensive look at labor market trends, including trends across all the industries we support: Automotive, Aerospace & Defense, Architecture & Engineering, Consumer & Industrial Products, Construction, Healthcare, Scientific R&D and Utilities.

Here's a few highlights from that report:

Connecting the Dots

1. The Inflation Reduction Act turns a year old this month. In Arizona, they're expecting that bill to create $10.8 billion of investment for building battery factories that will produce an estimated 11,400 new jobs. The question is, will there be enough workers to fill those jobs?
   In Actalent's Labor Market & Economy Report: read about how one semi-conductor company has had to delay completing its chip factory in Arizona due a shortage of skilled labor...
2. Supply chain disruption costs dropped more than 50% in 2022 – from $182 million in annual losses per company in 2021 to $82 million – according to a survey released by Interos this month, as reported by Reuters. But headwinds, like labor and material shortages, persist.
   

   In Actalent's Labor Market & Economy Report: read about two contrasting supply chain outcomes in Aerospace and Defense...

3. Prices in electricity services have risen 3% year-over-year, while prices in the rest of energy decreased
   

   In Actalent's Labor Market & Economy Report: read about how electric utilities are responding to ongoing demand and volatility as high summer temperatures reinforced the importance of power grid resiliency...