Unemployment Rate Falls Sharply
- The U.S. economy added 934,000 jobs in July, the largest increase in almost one year. Employment remains almost 6 million below its pre-recession level.
- The unemployment rate fell half of a percentage point to 5.4%, with a small increase in the labor force.
- There was a large increase in average hourly earnings as businesses compete for scarce workers.
- The U.S. labor market continues to heal from the Viral Recession.
The U.S. economy added 934,000 jobs in July, according to a survey of employers from the Bureau of Labor Statistics. This was above the consensus expectation for July of 880,000, and was the best month for job growth since August 2020. Job growth in June was revised sharply higher to 938,000 from 850,000, while May job growth was revised higher to 614,000 from 583,000, for a total upward revision of 120,000. The three-month moving average of job growth through July was 832,000, up from 607,000 in June and just 64,000 in January 2021, when there was a resurgence in the pandemic. At the current pace of job growth the U.S. economy would be back to its pre-pandemic level of employment in February 2022.
The private sector added 703,000 jobs in July, while government employment was up by 240,000.
The labor market recovery has picked up dramatically from early 2021 thanks to vaccine distribution and stimulus from the federal government. However, employment is still 5.7 million (3.7%) below its level in February 2020, before the pandemic came to the United States.
The unemployment rate fell by 0.5 percentage point in July to 5.4%, the lowest rate since it was 3.5% in February 2020, before the pandemic. Employment in a survey of households (different from the survey of employers) rose by 1.043 million in July, the biggest one-month gain since October 2020. The labor force increased by 261,000 in July, with the labor force participation rate up by 0.1 percentage point to 61.7%. The labor force participation rate was above 63% before the pandemic. There are about 3 million fewer people in the U.S. labor force now than there were before the pandemic; labor force growth will need to pick up if the U.S. is to return to its pre-pandemic level of employment.
Employment in goods-producing industries increased by 44,000 in July, with moderate gains in construction (up 11,000) and manufacturing (up 27,000) employment over the month. Employment rose in private services-providing industries in July by 659,000, with more than one-half of those gains coming in leisure/hospitality services (+380,000). Leisure/hospitality services employment is up by 1.1 million over the past three months as the industry recovers from the pandemic, although it is still down by almost 2.2 million (13%) from before the pandemic.
Average hourly earnings rose 0.3% in July from June, despite the big increase in employment in the low-paying leisure/hospitality services industry. Within leisure/hospitality services the hourly wage was up 0.9% over the month as businesses competed for scarce workers. The average workweek fell to 34.6 hours in July from 34.9 hours in June. With more jobs, higher wages, but a shorter average workweek, aggregate pay rose by a very strong 0.9% in July.
The July jobs report was very solid, coming in better than expected. There was a large increase in the number of jobs, a big drop in the unemployment rate, and a large increase in average hourly earnings. The biggest concern for near-term job growth remains the labor force. There are about 3 million fewer people in the U.S. either working or looking for work now, as compared to before the pandemic. If employment is return to its pre-pandemic level labor force growth must pick back up. Some of the contraction in the labor force is due to concern about the coronavirus, some is due to childcare responsibilities, some is due to an increase in legislated unemployment insurance benefits, and some is due to recession-induced early retirement among older workers. The first three factors should gradually fade over the next year, allowing for continued strong job growth through the rest of 2021 and into 2022. In particular, extra unemployment insurance benefits of $300 per week are set to expire nationally in early September, which could push some unemployed workers to increase their job search efforts.
PNC expects job growth of better than 600,000 per month through rest of 2021, slightly slower than its recent pace because of the slow recovery in labor force participation, with employment returning to its pre-recession peak by the second quarter of 2021. The unemployment rate will end 2021 at around 5%, and 2022 at around 4%.
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