- Strong hiring momentum continued into July, as nonfarm payrolls rose 943k jobs, beating market expectations. That impressive result comes on top of upward revisions to May and June totaling 119k jobs. The unemployment rate dropped 0.5 points to 5.4%, after ticking up to 5.9% in June.
- As of July, nonfarm payroll employment was down by 5.7 million, or 3.7% from its pre-pandemic level in February 2020.
- Once again, leisure and hospitality led the way on job gains, adding 380k positions. Two-thirds of the job gains were in restaurants and bars, which added back 253k workers. Despite solid gains, leisure and hospitality employment is still down 10.3%, or 1.7 million jobs, versus pre-pandemic levels. Atypical seasonal patterns in education hiring due to pandemic-related school closures and re-openings led to strong education hiring again in July, with local government education (+221k) and private education (+40k) up strongly. However, both sectors remain well below their pre-pandemic levels.
- Job gains were broad-based across other industries. Once again, job gains were up strongly in professional and business services (+60k). Gains were also seen in transportation and warehousing (+50k), other services (+39k), health care (+37k), information services (+24k), finance (+22k) and manufacturing (+27k).
- The drop in the unemployment rate was helped by the continued stagnation in labor force participation, which has been fairly flat over the past year between 61.4% and 61.7%, and ticked up a tenth of a percentage point to 61.7% in July.
- Work life continues to normalize as the share of people teleworking fell to 13.2% in July, from 14.4% in June. However, among those not in the labor force, 1.6 million were prevented from looking for work due to the pandemic, unchanged from June.
Key Implications
- The American labor market continues to make impressive progress, particularly since May. If the pace of hiring over the last three months continues, all jobs lost due to the pandemic would be regained in seven months. However, the pace is likely to cool a bit and the risk of the Delta variant looms. We expect the labor force participation to improve in the coming months, which should slow the improvement in the unemployment rate.
- The rising spread of the Delta variant is likely to lead to some consumer caution in areas where infections are rising strongly, which could weigh on hiring in high-contact sectors in the near term. Beyond that we expect the unemployment rate to continue to fall as more pandemic-related constraints on work ease and activity continues to normalize.
