U.S. non-farm payroll growth in July beat consensus expectations, rising by 1.763 million jobs compared to expectations for 1.48 million. However, this was a sharp deceleration from June’s 4.791 million job gain and May’s 2.725 million increase. This is likely to be the best jobs report we are likely to see for a while and probably exaggerates the health of the U.S. labor market today.
Since the July employment survey week, initial jobless claims have been creeping higher and that weakness won’t be showing up until the August employment report released in the first week of September. The July employment report also painted a much more robust picture of the labor market than the ADP Employment report released earlier this week that showed only 167k private payroll gain in July.
In short, the easy reopening job gains are likely behind us with this July employment report. Future payroll reports will be a better reflection of how consumer and business demand is holding up in the face of double-digit unemployment rates. Another sizable federal government pandemic rescue package needs to be passed soon to ensure consumer demand remains intact at least for another quarter or two. The loss of enhanced unemployment benefits and an inability to pass another stimulus bill will threaten a labor market recovery that already appears to be losing momentum.Unemployment Remains High
Despite the massive reopening employment gains over the past three months, the U.S. unemployment rate in July continues to modestly exceed the peak during the Great Recession. The U.S. unemployment rate improved to 10.2% in July from 11.1% in June and an April peak to 14.7%. The underemployment rate or U6 measure of unemployment improved to 16.5% in July from 18.0% in June.
The strong rebound in retail sales over the last several months fueled by surging real disposable incomes from federal transfer payments have helped create the conditions that got the U.S. unemployment rate back down to these still elevated levels. If the federal government starts to remove that income support in August, the economic reality of 10% unemployment will begin to dawn on more consumers and their spending behavior could deteriorate substantially in the months ahead. This could start another negative feedback loop for the labor market as employers respond to that new sales weakness by laying off more workers.Where Job Gains Came From
The bulk of the job gains at the industry level in July (79% of total non-farm payroll gains) came from leisure and hospitality, trade and transportation, education and health care, and government, suggesting reopening continued to dominate the headline job growth last month. This has a lot to do with the timing of the July employment survey, which actually captured job gains between mid-June and mid-July and caught the tail-end of people returning to their jobs following the shutdowns. However, job growth downshifted sharply last month in manufacturing, construction, information, and business services, signaling prolonged labor market weakness just below the surface. Bottom line, the July employment report extended the three-month reopening job gains that exceeded nearly all economists’ expectations, but the labor market outlook from here remains as murky as ever.
For the full report, click here.Read More ›
We received more confirmation this week that consumer spending bounced back strongly from its April lows. The $1,200 checks that were sent by the Federal Government to individuals certainly helped create the conditions for this reopening spending revival, but I would argue that expanded and supplemented unemployment insurance benefits have been much more targeted and effective in maintaining spending among the most vulnerable households.Read More ›
Last week we wrote about dark clouds building on the economic horizon as COVID-19 cases have surged in recent weeks. This week more evidence emerged that the spike in virus cases is indeed sucking the oxygen out of the robust economic recovery we have seen over the past two and a half months.Read More ›
Like a mid-summer thunderstorm approaching from the West, dark clouds are beginning to build on our economic and financial horizon yet again.
It’s still too early to know whether we will be hit by an imminent downpour or not. A last minute economic rescue package in the $1 to $2 trillion dollar range from Congress before the end of July could help keep the storm clouds at bay until the end of the year, but the increasing virus case count is already doing some material damage to the pace of the economic recovery in my opinion.Read More ›