Employment Poised to Moderate

The ranks of those with long COVID are large and appear to be rising.

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Diane Swonk

Diane Swonk

Chief Economist, KPMG US

+1 312-665-1000


Payroll employment growth is expected to slow to 240,000 in July from 372,000 in June. Gains in leisure and hospitality and the professional services sector are expected to continue to drive overall gains. Manufacturing employment is expected to remain solid, while construction employment softens.

One of the largest concerns at the moment is the growing divide between the performance of the household and establishment surveys. The household survey actually calls people to ask about their work. The establishment survey makes assumptions about new business formation and hiring by small businesses that can be subject to large revisions and miss turning points.

The household survey showed that employment stalled out in the April-through-May period, while the establishment survey showed that employment gains remained robust. The question is whether we see a catch-up in household employment in July or a further deterioration.

The surge in interest rates has derailed much of the financing for unicorns and deals that fueled the surge in new business formation since the onset of the pandemic. Add the margin compression that small businesses are feeling, and it could be that employment gains have already weakened much more than we are seeing in the payroll report.

Average hourly earnings are expected to have risen 0.3% for the month of July and 4.9% from a year ago. That is still well above the 3.1% annual pace of February 2020 but well below the recent 5.6% peak of March 2022. The employment cost index for the second quarter suggests that underlying wage growth has actually held up better than the average hourly earnings data indicate.

Wage gains in low-wage leisure and hospitality jobs are losing momentum, while wages in higher paid jobs, such as professional services, are gaining momentum. That said, consumers are still losing ground and then some after adjusting for the red-hot inflation we are enduring.

Recent data by Indeed suggest that job openings cooled to about 53% above February 2020 levels. That translates to about 10.7 million job openings in July; the ratio of job openings per worker is expected to hold at about 1.9, barring a move up in unemployment.

The chill in the tech sector is real; job postings in tech hubs have hit a wall. This will have spillover effects for local housing markets but not have a large impact on the overall employment data in July.

Separately, the unemployment rate is expected to hold at 3.6% in July. That is a pandemic low and close to the 3.5% rate we hit in February 2020. Federal Reserve Chairman Jay Powell has said that level of unemployment is “unsustainably” low as staffing shortages continue to add to inflationary pressures.

The staffing shortages due to an unusual level of COVID infections are expected to worsen in July. The ranks of those out sick and unable to work were more than 50% above the pre-pandemic average in June. That figure could jump above 60% in July. The ranks of those with long COVID are large and appear to be rising but we have only just begun to gather that data.

The chill in the tech sector is real; job postings in tech hubs have hit a wall.
Business investment is poised to contract in the overall GDP data in the second quarter.