- Nonfarm payrolls rose by 1.76 million in July, beating consensus expectations for 1.48 million. July payrolls remained 12.9 million positions (or 8.4%) below their pre-Covid February level.
- The unemployment rate also improved further in July, falling to 10.2% from 11.1% in June, as the number of unemployed persons fell by 1.4 million to 16.3 million.
- The largest job gains occurred in leisure and hospitality (+592k, vs +2.1 million in June), retail trade (+258k, vs +740k in July), professional and business services (+170k), other services (+149k) and health care (+126k). Government hiring was also strong (+300k), but this was due to the unusual hiring patterns in local government education hiring due to the pandemic, which resulted in 215k gain in July due entirely to seasonal factors.
- Other key sectors saw modest job gains: +26k in manufacturing, +21k in finance, +38k in transportation an warehousing and +20k in construction. The mining sector continued to shed jobs in July (-7k).
- People on temporary layoff fell 1.3 million in July to 9.2 million, as people were called back to work. In contrast, the number of people on permanent layoff was virtually unchanged at 2.9 million. Looking at labor underutilization more broadly, 24.1 million people were either unemployed or out of the labor force but currently want a job, down from a peak of 33 million in April. Including those “discouraged” workers would lift the unemployment rate to 14.4%.
Key Implications
- Given the loss in momentum in the high-frequency labor market indicators in July, job gains held up better than expected. However, the pace or rehiring has slowed from May and June. All told, the U.S. economy has now recouped 9.3 million of the 22.2 million jobs lost in March and April, or about 42%. Not surprisingly, the services sector has fared somewhat worse, with only 44% of losses recouped. Within services, leisure and hospitality has recouped 48% of the jobs lost, but still remains 26% lower than in February – the biggest jobs deficit of any industry.
- Alongside the surge in infections since late June, many high-frequency indicators of mobility and spending have lost momentum. It is encouraging that the economy was still able to recoup lost jobs early in the month. However, the surge in infections, which occurred alongside re-openings, has demonstrated that strict social distancing and capacity limits in many spaces are required to contain the outbreak. These necessary restraints are likely to weigh on the pace of re-hiring at businesses that involve large numbers of people mixing indoors.
- The two biggest question marks on the near-term outlook are the success of containing the virus, and how much assistance Washington will provide. At time of writing, Congress has not reached a deal on the next spending package, and the generous $600 unemployment benefit (FPUC) expired last week. There is clear evidence that expanded unemployment benefits have helped buoy retail spending in recent months, and there is likely to be near-term slowing at a minimum, unless and until Washington passes another relief package. We expect Congress will pass additional relief, which will help to buoy growth in the coming months, but the contours are still uncertain.
