U.S. employers added back more jobs than expected last month, with payroll gains moving in tandem with improving economic activity and consumer mobility during the recovery. The jobless rate also fell to the lowest level since March 2020, improving more than expected.
The U.S. Labor Department released its July jobs report Friday morning at 8:30 a.m. ET. Here were the main metrics from the report, compared to consensus estimates compiled by Bloomberg:
Change in non-farm payrolls: +943,000 vs. +865,000 expected and a revised +938,000 in June
Unemployment rate:5.4% vs. 5.7% expected and 5.9% in June
Average hourly earnings, month-on-month: 0.4% vs. 0.3% expected and a revised 0.4% in June
Average hourly earnings, year-on-year: 4.0% vs. 3.9% expected and a revised 3.7% in June
At 943,000, payrolls last month grew by the most since August 2020. Job growth was also upwardly revised for May, coming in at 614,000 versus the 583,000 previously reported, and for June, with an upward revision to 938,000 from 850,000.
The economy, however, is still trying to recoup millions of jobs lost since the start of the pandemic. On net, the economy has shed 5.7 million payrolls since March of last year, with much of this deficit still present in the leisure and hospitality industries. These employers shed a total of nearly 2 million jobs since the pandemic first brought about shutdowns across the U.S.
Leisure and hospitality employers were again the leaders in bringing back jobs last month, with payrolls rising by 380,000 to comprise more than a third of the total July jobs gains. In the private sector, education and health services employment also contributed notably, with payrolls increasing by nearly 90,000.
A significant contributor to the July payrolls report also came from government jobs, especially in education. Overall, government payrolls were up by 240,000 last month. These increases, however, may overstate the extent of actual job growth occurring in the sector, given seasonal adjustment issues due to the pandemic.
"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," the Labor Department said in its report Friday. "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. These variations make it more challenging to discern the current employment trends in these education industries."
Since the June jobs report, the Delta variant has swept across the country, exacerbating many workers' concerns over becoming infected in the workplace. Plus, difficulties finding childcare over the summer and the ongoing support of federal unemployment enhanced benefits have lingered, generating a confluence of factors that may have kept more individuals sidelined from the labor market. Still, these factors were not enough to offset the momentum present across the economy this summer.
Still, for the economy, bringing back enough workers to meet surging consumer demand has become a major issue weighing on the overall pace of growth. Job shortages have hit both the manufacturing and service sectors, with many employers raising wages to compete for workers. As a result, average hourly earnings rose by another 0.4% month-on-month, and accelerated more than expected to a 4.0% year-on-year pace in July.
A 'Help Wanted' sign is posted in front of a restaurant in Los Angeles, California on May 28, 2021, as many jobs at restaurants remain unfilled, despite California's high unemployment rate. (Photo by FREDERIC J. BROWN/AFP via Getty Images) ·FREDERIC J. BROWN via Getty Images
Heading into Friday's report, other data on the labor market have been mixed. Encouragingly, the Institute for Supply Management's July manufacturing and services indexes both showed employment growth flipped back into expansionary territory after contracting in June. Weekly initial jobless claims have been choppy, but have largely continued on a downtrend this summer. However, ADP's closely watched monthly payrolls report out Wednesday represented a sharp downside disappointment, with private payrolls rising by just 330,000 compared to the 690,000 consensus estimate.
For investors, however, a slight moderation in job growth could be taken as a potential positive for markets, if it disincentives central bank officials from removing their highly accommodative monetary policies in the near-term. Federal Reserve Governor Christopher Waller said earlier this week that he would support announcing tapering of the central bank's crisis-era bond purchases by September if the next couple jobs report come in strongly. Likewise, Federal Reserve Vice Chair Richard Clarida said he would back an interest rate increase in 2023 if the economic recovery continues on its current trajectory.
"If the ADP is to be believed and employment growth has slowed again, then that would support the doves who appear to want to wait until early next year to begin the taper," Paul Ashworth, chief U.S. economist for Capital Economics, wrote in a note. "The July report, due this Friday, is especially important because it is the last employment data the Fed will have ahead of the Jackson Hole Symposium toward the end of this month."
The Fed will discuss policy at its annual Jackson Hole Symposium scheduled for Aug. 26 to 28.
