The U.S. labor market continues to be very strong.

According to Bureau of Labor Statistics (BLS) data released Friday, U.S. employers added a whopping 528,000 jobs in July, much stronger than the 250,000 gain economists expected.

There are now 152.536 million people employed, according to the payroll data, which puts that number above the pre-pandemic high of 152.504 million (February 2020).

The unemployment rate fell to 3.5% from 3.6% in June. This marks the lowest rate since February 2020.

This is an almost unbelievable update from the BLS, considering how much U.S. economic growth has been cooling.

However, it is in line with other labor market data, which shows layoffs remain low and job openings remain high. It also confirms that the U.S. economy is not in a recession, as employers continue to add hundreds of thousands of jobs month in and month out.

Rising employment means more people are earning income, which means more money spent in the economy. This is good news.

However, supply chains — while improving significantly — continue to be stretched. This has put growing demand from consumers on a collision course with a limited supply of goods and services, which risks keeping inflation persistently high. This is bad news.

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The tight labor market has also made recruiting and retaining workers an incredible challenge for employers, which are responding by rapidly raising wages.

In July, average hourly earnings jumped by 0.5% month over month, an acceleration from the 0.3% growth rate in June. This reflects a 5.2% annual rate of growth.

Ironically, these growing wages are enabling many consumers to pay up for increasingly expensive goods and services, which is actually helping to perpetuate inflation.

All of this only puts more pressure on the Federal Reserve to be more aggressive about reining in the economy with tight monetary policy. as it awaits compelling evidence that inflation is coming down.

Of course, there is also a bullish wild card scenario where supply in the economy catches up to demand, in which case we could see inflation ease without the need for Fed-sponsored demand destruction. We’ll see.

BONUS: Economists react 🤯

The economist community had some colorful things to say about Friday’s jobs report. Here are some highlights:

“If the U.S. economy is in a recession, no one seems to have told employers.“ - Sarah House, senior economist at Wells Fargo

“The unexpected acceleration in non-farm payroll growth in July, together with the further decline in the unemployment rate and the renewed pick-up in wage pressure, make a mockery of claims that the economy is on the brink of recession.” - Michael Pearce, senior U.S. economist at Capital Economics

“How's that recession call going?“ - Ian Shepherdson, chief economist at Pantheon Macroeconomics

“Actions speak louder than words. People say they’re concerned about a recession yet employers keep hiring in droves… Underestimate the US labor market at your own peril. Yes, output growth might be slowing and the economic outlook has some clouds on the horizon. But employers are still champing at the bit to hire more workers. That demand may fade, but it’s still red hot right now.“ - Nick Bunker, head of economic research at the Indeed Hiring Lab

“The US labor market continues to confound expectations with another very strong jobs print in July.“ - James Knightley, chief international economist at ING

“The report throws cold water on a significant cooling in labor demand, but it's a good sign for the broader U.S. economy and worker.“ - Stephen Juneau, U.S. economist at Bank of America

“The July employment report was an absolute knock-out, a major upside surprise relative to my expectations and indeed much of the labor market data released up to this point. Talk of recession and a monetary policy pivot is premature. That said, this jobs report is consistent with an inflationary boom. The Fed has a lot more work to do and in an odd way, that the Fed needs to get more aggressive in pushing up rates, makes the hard-landing scenario more likely.“ - Neil Dutta, head of U.S. economics at Renaissance Macro Research

“How to take today's jobs report depends on your priors. Worried that we have been in a recession for 6 months? Lots of reasons to relax. Worried tight labor markets will push inflation higher? No signs of relief.“ - Adam Ozimek, chief economist at Economic Innovation Group

“For the Fed, this jobs report translates into ‘let's keep pressing on the monetary policy brake.’ The labor market remains robust & wage growth momentum is uncomfortably hot.“ - Gregory Daco, chief economist at EY-Parthenon

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More from TKer:

• A bunch of charts showing how supply chains have improved⛓

• You'd think there'd be more layoffs by now 🤔

• What if the markets are misreading the Fed 😵‍💫 🥊

• Not officially a recession, but not great either 📉

• Prominent economist raises doubts about a troubling labor market indicator 🧐