Surprise US job surge lifts employment back to pre-Covid levels

US unemployment rate by month since February 2020

The US jobs market grew much faster than expected in July, lifting employment back to pre-pandemic levels, in news welcomed by President Joe Biden as he faces tough midterm elections -- but which also fuels concerns over sky-high inflation.

Even the White House had predicted job gains would slow last month, which Biden had said was part of the natural downshift after the rapid rebound of the world's largest economy from the pandemic downturn.

"Today, the unemployment rate matches the lowest it's been in more than 50 years: 3.5 percent," Biden said in a statement.

On top of the hiring surge last month, the Labor Department report said the outsized job gain in June was revised higher, as was May, adding a total 28,000 positions to the initial data.

Meanwhile, the closely watched report showed wages jumped in July -- with average hourly earnings up 15 cents from June -- stoking concerns about a possible wage-price spiral. Over the past 12 months, average hourly earnings have increased by 5.2 percent.

With inflation topping nine percent, the highest in more than 40 years, the Federal Reserve has been raising interest rates aggressively to cool the economy, and economists now say a third consecutive three-quarter-point hike is likely in September.

The US president called for passage of his health and climate investment bill that has picked up momentum on Capitol Hill in recent days, calling it "a game changer for working families and our economy."

After recent data showed GDP contracted for the second consecutive quarter -- causing many to say the economy is in recession -- US stocks had been gaining ground due to investor optimism that the Fed would be able to dial back its inflation-fighting efforts.

With the latest increase, total non-farm employment recovered to its pre-pandemic level, the data showed, and hiring topped 430,000 in the past three months.

"This report pushes the Fed towards a 75 basis point move AGAIN in September," she said on Twitter.

And central bankers this week have made it clear that investor optimism about a possible downshift was misplaced.

The central bank will get another employment report and multiple inflation reports before its next policy meeting in mid-September.

Hiring was robust in leisure and hospitality and health care, which each adding 96,000 or more in july, while manufacturing and construction gained at least 32,000.

But there were signs of strains as well. The number of people working part time for economic reasons, which dropped sharply in June, rebounded in July. And a growing number of workers are taking on second jobs, including 403,000 with two full-time positions.

Kathryn Bach of the Brookings Institution said she believes there could be as many as four million people prevented from working due to the effects of Covid-19.

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