July 2022 National Economic Outlook

Strong June Job Growth, But Very High Inflation as Well; GDP Fell in Second Quarter

The labor market remains very strong, with the U.S. economy adding 372,000 jobs in June, according to a survey of employers from the Bureau of Labor Statistics. Over the past three months job growth has averaged 375,000. Although this is below the pace of better than 500,000 per month in the first three months of 2022, it is well above the pace of around 200,000 per month before the pandemic came to the U.S. Employment in June was about 500,000, or 0.3%, its pre-pandemic peak in February 2020. 

Employment should reach a new peak in the next few months, a remarkable achievement given that the economy lost 22 million jobs in March and April of 2020. The unemployment rate held steady at 3.6% for the fourth straight month in June, just 0.1 percentage point above its pre-pandemic level, and near the lowest unemployment rate in more than 5 decades.

The consumer price index increased 1.3% in June from May. A 7.5% increase in energy prices, including a more than 11% jump in gasoline prices, pushed the overall CPI higher for the month. But the core CPI index, which excludes volatile food and energy prices, rose a large 0.7% in June, indicating that inflationary pressures are broad-based throughout the economy. On a year-ago basis the overall CPI was up 9.1% in July, an acceleration from 8.6% in May and the strongest inflation since 1981. 

Core inflation slowed somewhat on a year-ago basis in June to 5.9%, from 6.0% in May, but remains very elevated. Monthly inflation will be much lower in July as falling gasoline prices provide some relief to consumers. In response to high inflation, in late July the Federal Open Market Committee raised its short-term policy rate, the fed funds rate, by 75 basis points, to a range of 2.25% to 2.50%. This is up from 0% at the beginning of the year.

Real gross domestic product fell 0.9% at an annual rate in the second quarter of 2022, according to the advance estimate from the Bureau of Economic Analysis; this followed a 1.6% decline in the first quarter. (PNC’s July forecast was prepared before the BEA release). The big drag came from inventories, which subtracted 2 percentage points from growth. 

Trade was a major positive, adding 1.4 percentage points to growth in the quarter, as the trade deficit narrowed. Consumer spending rose 1.0% adjusted for inflation, adding 0.7 percentage point to growth. Goods spending fell, but a big increase in services spending more than offset this. Business fixed investment was essentially flat in the second quarter. Housing investment was a major drag, subtracting 0.7 percentage point from growth, as higher interest rates weighed on construction.

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July National Economic Outlook

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