July jobs report better than expected, though worker supply remains challenging

Total nonfarm payroll employment rose by 943,000 in July and the unemployment rate dropped to a pandemic-era low of 5.4%, according to the Bureau of Labor Statistics (BLS).

July’s job gain marked the largest increase in jobs since last August, handily beating the economist projection of 870,000. Additionally, employment growth was upwardly revised for both May and June as well (up 31,000 in May and up 88,000 in June).

The revisions bring the pace of job growth over the past three months to 832,000, the strongest rate of gains since October. While the labor market remains down 5.7 million jobs (3.7%) from its February 2020 pre-pandemic level, it has now risen by 16.7 million jobs since April 2020.

“Beyond the payroll data, the household survey showed employment up by more than 1 million in July, as the number of unemployed fell, and more people returned to the labor force,” noted Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association. “Although there are concerns regarding the impact of the Delta variant [of COVID-19], these data show an economy that was continuing to recover in July.”

July’s big increase, the BLS report noted, was distorted somewhat by COVID-driven seasonal aberrations. For example, according to the report, “staffing fluctuations in education due to the pandemic have distorted the normal seasonal buildup and layoff patterns, likely contributing to the job gains in July. Without the typical seasonal employment increases earlier, there were fewer layoffs at the end of the school year, resulting in job gains after seasonal adjustment.” Indeed, employment jumped by 221,000 in local government education and another 40,000 in private education.

Still, strong hiring was evident in many sectors of the private realm, with every major segment besides retail adding jobs. Leisure and hospitality, in particular, saw a strong month with 380,000 new jobs, comprising over half of all July job gains in the private sector. Approximately two-thirds (253,000) of those new leisure and hospitality jobs were added in food services and drinking establishments.

Construction employment grew by 11,000 jobs, most of which were added in the residential building industry. Fratantoni said that the addition “bodes well for increased homebuilding, which the housing market desperately needs given the lack of inventory.”

Despite the job growth, the availability of workers continues to pose a challenge for the labor market, with employers listing open positions but not enough people to fill them. The labor force increased by 261,000 and the participation rate crept up to 61.7%, but participation remains within its post-pandemic range. It’s likely that renewed fears over the fast-spreading Delta variant is keeping some from returning to work. Worker supply issues are also helping push wages upward, with average hourly earnings growing 0.4% in July.


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