The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor Senior Economist Daniel Zhao.
Today’s jobs report shows the recovery continued to chug along in July with 943,000 jobs added, above expectations and slightly above the upwardly revised 938,000 jobs added in June. The unemployment rate dropped to 5.4 percent, more than reversing its surprise jump from June. Overall, the labor market appears to be making steady progress towards recovery. However, storm clouds are on the horizon with outbreaks of the COVID-19 delta variant rapidly spreading.
Payroll Grow by Almost A Million Jobs in July
Employers added 943,000 jobs to payrolls in July, above expectations. Job gains in July were the highest since August of last year. Leisure & hospitality led job gains with an increase of 380,000. Professional & business services (+60,000 jobs) and transportation & warehousing (+49,700) also contributed to job gains as the reopening continued in July.
Education Sector Artificially Boosts Payroll Gains
The gain in payrolls, however, was boosted by the seasonal adjustment, which expected larger layoffs at the end of the school year. Many of those layoffs were pulled forward earlier in the pandemic or simply didn’t occur as education workforces were slimmer during the last school year. State & local government education and private education added 270,600 jobs on a seasonally adjusted basis, despite losing 1,007,400 jobs on a non-seasonally adjusted basis.
Unemployment Falls to 5.4 Percent
The unemployment rate fell to 5.4 percent in July, reversing the unexpected bump to 5.9 percent in June. The drop was also matched by a small increase in the labor force participation rate to 61.7 percent, indicating more workers are being pulled off the sidelines back into the labor force. Similarly, the share of those who are employed part-time for economic reasons dropped to 2.9 percent, nearing their pre-pandemic levels as employers try to get more hours out of their existing workers.
Average Hourly Earnings Jump in Leisure & Hospitality
Average hourly earnings in leisure & hospitality for production & non-supervisory workers rose 1.4 percent month-over-month in July, a slight slowdown from June’s 2.5 percent pace. For context, July’s 1.4 percent increase is equivalent to 18.4 percent annualized, indicating how rapidly wages are rising in industries affected by labor shortages.
Where’s the Impact from State Withdrawals from Enhanced UI Programs?
July’s report alone isn’t enough to settle around the impact of state withdrawals from enhanced federal UI programs. On the one hand, the report did show strong job gains in leisure and hospitality, but on the other, these gains were largely in line with recent months. The job finding rate of workers not in the labor force did increase to 4.9 percent in July, a sign that some workers are being pulled in from out of the labor force. Ultimately, state-level data released later this month will help provide a more granular picture of how the withdrawals are impacting job growth.
Delta Variant Outbreaks Cloud Outlook
If the latest wave of outbreaks can be contained, the aggregate economic impact of the delta variant is likely to be more muted than past waves. A significant portion of the American population is vaccinated and employers are more experienced with responding to local outbreaks. Employer action to incentivize or mandate vaccines is also a new feature of the latest wave, which may help mitigate spread, even as employers add more workers.
While payroll gains accelerated in July as the labor market made steady progress towards a recovery, today’s report is a last look at the labor market before the impact of the delta variant is fully felt.
Employers added 943,000 jobs in July, up from the upwardly revised 938,000 in June. Job gains in July flirted with the 1 million per month mark that many economists thought the labor market would reach earlier this year.
Payroll employment is still 5.7 million below pre-pandemic levels, but continuing to add nearly 1 million jobs a month would go a long way to closing the gap.
Payroll gains were largest in leisure & hospitality and government. Leisure & hospitality’s 380,000 jobs added were in line with the 394,000 jobs added in June. Government payroll gains were bolstered by the smaller-than-expected seasonal layoffs.
The bottom-right panel shows that on a non-seasonally-adjusted basis, government payrolls dropped significantly. Private and public education combined lost 1.01 million jobs non-seasonally adjusted, but gained 270,600 jobs on a seasonally adjusted basis.
Government jobs still lag the rest of the economy in terms of recovery from intra-pandemic lows. Leisure & hospitality has the largest shortfall in terms of the number of jobs, but government payrolls have not improved much from the depths of the pandemic.
Leisure & hospitality continued its run of strong wage growth in July with average hourly earnings for production & nonsupervisory workers up 13 percent year-over-year. The month-over-month rate of growth slowed slightly in July, but the 13 percent annual growth signals that labor shortages are driving wages higher.
If you look at annualized average hourly earnings growth in just the last 3 months, it’s even more dramatic. Wages in leisure & hospitality are up an annualized 22 percent over the last 3 months and transportation & warehousing wages are similarly up, rising 16.3 percent.
Switching to the household survey: the unemployment rate dropped in July to 5.4 percent, more than reversing a surprise bump in June to 5.9 percent. The drop in unemployment was also paired with a nice but modest uptick in labor force participation to 61.7 percent (+0.1 percentage point).
Temporary layoffs dropped by 572,000 in July to 1.2 million. While unemployment earlier in the crisis was dominated by temporary layoffs, now, there’s not much more room for temporary layoffs to fall. Future job gains will have to largely come from hiring new workers rather than rehiring furloughed workers.
The unemployment rate dropped by 1 percentage point for Black workers down to 8.2 percent and 0.8 percentage points for Hispanic/Latino workers down to 6.6 percent, making progress toward narrowing the gap with white workers, though there’s still a long way to go to fully closing that gap.
And even though the Black unemployment rate fell by 1 percentage point, that was actually on the back of Black workers falling out of the labor force in July. Employment for Black workers actually fell slightly by 12,000.