The United States added 1.763 million payroll jobs in July as the labor market continued to recover from the Viral Recession. This was only slightly below PNC’s and the market consensus forecast of close to 1.9 million jobs. The unemployment rate (U-3) fell to 10.2 percent in July. Private sector jobs rose by 1.462 million and government jobs rose by 301K.

While the economy has added a large 9.28 million jobs over the past three months, it lost 22.16 million jobs in March and April combined. Thus, the economy has recovered 42 percent of its job losses over the past  three months. But employment is still down by 12.8 million, or 8.2 percent, from its February peak. There is definitely a glass half-empty/glass half-full feel to the July jobs report. The labor market is indeed coming back, with three straight months of solid job growth. But given the depth of the contraction in March and April, it is still a long way back for the U.S. economy and the labor market.

The unemployment rate (U-3) dropped to 10.2 percent in July, from 11.1 percent in June, 13.3 percent in May and 14.7 percent in April (by far the highest rate since the Great Depression). The rapid decline in the unemployment rate over the past three months has been unprecedented, but the rate is still far above its 3.5 percent level in early 2020. It is also still above the 10.0 percent peak during the Great Recession a decade ago. The “under employment rate” (U-6) , which includes underemployed workers as well as those too discouraged to look for a job, fell to 16.5 percent in July, down from18 percent in June, 21.2 percent in May and 22..8 percent in April. The U-6 rate was 7.0 percent in February before the Covid 19 pandemic began.

According to the Bureau of Labor Statistics there are much few number of workers who are reporting themselves as employed but not at work, when they should be classified as unemployed on temporary layoff; thus the 10,2 percent rate in July likely understates the “true” unemployment rate by about a percentage point. But the same problem was there in April and May, and to a greater extent, and so the decline in the reported unemployment rate over the past three months is truly indicative of an improvement in the job market.

Employment in a survey of households (different from the survey of employers) rose by 1.35 million in July, while the labor force fell by 62,000. The labor force participation rate (share of those 16 or older either working or looking for work) fell slightly to 61.4 percent in July from 61.5 percent in June. But it is still down dramatically from 63.4 percent earlier in the year. The share of those 16 and older that are employed rose to 55.1 percent in July from 54.6 percent in June, 52.8 percent in May and 51.3 percent in April. But the July employment ratio is still down from more than 61 percent at the beginning of the year,

Job gains were broad-based across industries in July. The private sector added 1.46 million jobs as businesses continued to reopen, even with setbacks and as the Covid 19 infection and fatalities rates rose. Goods-producing industries added only 39,000 jobs, including 20,000 in construction and 26,000 in manufacturing. Natural resource and mining jobs fell by 7,000.  Private-services providing industries added 1.42 million jobs. The biggest June gains were in the two industries hit hardest by the initial closures: leisure/hospitality services employment (primarily restaurants and hotels) rose by 592,000, while retail trade employment rose by 258,000. There was an increases of 215,000 jobs in education/health services, and 170,000 jobs in business services. Only information industry jobs fell by 15,000.  The public sector increased jobs by 301,000 almost all of which came from state and local governments. The normal closure of schools in July partly occurred earlier this year  because of Covid 19, so the seasonal adjustment likely inflated this job gain.

The coronavirus-related layoffs, and then job gains, have skewed wage data recently. With job losses, and subsequent job gains, concentrated in low-wage industries such as restaurants and retail, average hourly earnings jumped 4.7 percent in April as these workers were laid off (the biggest increase on record), and then fell 1.1 percent in May and fell 1.3 percent in June as they were rehired (the two biggest declines on record). July average wages rose by 0.2 percent and are up 4.8 percent from a year ago. .

Total hours worked in the private sector edged down by 0.3 percent in July, the same as in June.  Manufacturing hours worked rose strongly in July, especially in motor vehicle industries, but service industries cut hours worked as Covid 19 cases and fatalities worsened last month. With a solid increase in employment, a rise in average hourly earnings, but a shorter average workweek, earned income likely rose by 1.5 percent in July. With unemployment insurance payment rising in July, this supports a solid gain in retail sales which we expect to jump by nearly 4 percent.

What matters most is the pace of near-term job growth. If monthly job growth continues to run in the millions and the unemployment rate falls rapidly, the labor market will quickly heal from the Viral Recession. But if job growth slows it will be a long, drawn-out recovery. A number of factors will determine the pace of recovery in the labor market. Most important is the path of the virus, and here the recent uptick in cases in many parts of the country is discouraging. If states re-impose restrictions on economic activity to combat the pandemic, or even if consumers are reluctant to venture out absent state restrictions, the labor market recovery will slow, perhaps dramatically. Also important is fiscal stimulus. One-time stimulus payments and extra unemployment insurance benefits have been supporting consumer spending for the past three months. The $600/ week unemployment insurance payment expired at the end of July. Given the enormous loss of labor market income from the recession, if transfer payments drop off consumers could cut back on their spending, slowing the recovery. Yet, we expect Congress will pass another stimulus bill that again includes payments to families below the same income level as in the CARES Act and includes at least $400/ week in extra unemployment insurance payments.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.