July Job Gains Exceed Expectations

Unemployment rate slides down to 5.4 percent; surveys conducted before delta variant wave

Roy Maurer By Roy Maurer August 6, 2021
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Almost a million new jobs were created in July—on top of a similar number revised up for June —and unemployment fell to a new pandemic low of 5.4 percent, according to the latest employment report from the Bureau of Labor Statistics (BLS).

U.S. payrolls rose by 943,000 in July—from June's upwardly revised gain of 938,000—the largest monthly increase since August 2020. Total employment is now 5.7 million jobs below its pre-pandemic level, while unemployment is still quite far from the pre-pandemic rate of 3.5 percent.

"Job growth continues to accelerate and more workers are finding jobs or starting to pick up their job search," said Nick Bunker, an economist at the Indeed Hiring Lab. "Sectors tied to the reopening of the labor market are leading the way, giving some hope that these gains can continue in the months ahead. However, the delta variant does pose a risk to the pace of progress."

The data in the July report is based on surveys taken mid-month, before the recent rise in COVID-19 cases linked to the delta variant. Next month's report will show whether the more contagious strain will derail the economic recovery just starting to gain steam.

"Overall, the labor market appears to be making steady progress towards recovery; however, storm clouds are on the horizon," said Daniel Zhao, Glassdoor senior economist. "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 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."

Since the July survey period, mask mandates and other restrictions have been reimposed in some areas, and a continuing list of employers have announced vaccination mandates and have delayed return-to-office plans.

Dining Out, Traveling Picked Up

In July, employment in leisure and hospitality increased by 380,000, with two-thirds of the job gains in restaurants and bars. Despite recent growth, employment in leisure and hospitality is down by 1.7 million, or just over 10 percent, from its level in February 2020.

Employment gains were also reported in professional and business services (60,000 jobs added), transportation and warehousing (50,000), health care (37,000), manufacturing (27,000), and finance (22,000). Retailers lost 6,000 jobs following large increases the prior two months.

"Today's payroll gain figure reflects record-fast expansion in the service sector," said Julia Pollak, a labor market economist at employment marketplace ZipRecruiter. "According to the ISM Services Index, every part of the service sector saw activity pick up in July, leading to record-high activity overall. Today's jobs report confirms that strong and growing consumer demand for services is putting pressure on businesses to restaff quickly."

Zhao pointed out that the gain in payrolls, however, was boosted by seasonal adjustment to education staffing, 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," he said. "State and local government education and private education added 270,600 jobs on a seasonally adjusted basis, despite losing over 1 million jobs on a nonseasonally adjusted basis."

The disruption to typical seasonal buildup and layoff patterns has made it more challenging to discern the current employment trends in education, BLS said.

Unemployment Falls

The number of people classified as unemployed fell by 782,000 to 8.7 million. That's considerably down from a recent high in April 2020 but well above levels prior to the COVID-19 pandemic.

An alternative measure of unemployment that includes discouraged workers and those holding parttime jobs for economic reasons fell to 9.2 percent. The number of long-term unemployed (those jobless for 27 weeks or more) decreased by 560,000 in July to 3.4 million, accounting for 39 percent of the total unemployed.

"The drop in unemployment 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," Zhao said.

The employment-to-population ratio increased by 0.4 percentage points to 58.4 percent. "That rise was even more pronounced for prime-age workers, whose employment rate rose by 0.6 point," Bunker said. "The labor force participation rate for prime-age workers also rose, with increases for both men and women."

Heidi Shierholz, senior economist and director of policy at the Economic Policy Institute in Washington, D.C., noted that the data collected doesn't reveal anything about the impact of states cancelling pandemic unemployment insurance benefits, since state breakdowns are not provided. "However, most available data do not find that canceling UI benefits is increasing employment, consistent with earlier evidence that pandemic UI benefits were not keeping people out of the labor market en masse," she said.

State-level data released later this month will help provide a more granular picture of how the withdrawals are impacting job growth, Zhao said.

Wages Rise

Average hourly earnings increased more than expected, rising 4 percent from the same period a year ago. "The data for recent months suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages," the BLS said.

Pollak said that wage growth remains strong as employers continue to confront hiring challenges—particularly in relatively low-wage industries. "In job postings on ZipRecruiter, we are seeing employers relax education and experience requirements for candidates, while raising wages and expanding benefits, especially signing bonuses. The higher wages and expanded hiring incentives employers are offering are starting to entice people off the sidelines and back into the labor market. According to today's report, the average wages of nonsupervisory workers have risen 7.8 percent since pre-COVID February 2020."

Hiring Challenges

The BLS report comes amid employers reporting that difficulty finding workers to fill open jobs continues to hold back hiring. Evidence shows that many employers are increasingly desperate to hire, offering higher pay, signing bonuses and more flexible working hours to attract applicants, a shift in power that has given job seekers the upper hand.

"It's the supply side where we continue to see challenges," said Becky Frankiewicz, president of ManpowerGroup US. "We are still in a workers' market and this is a health and wellbeing economy. This great awakening of the American workforce—seeking better work/life balance, greater flexibility, higher wages and health and wellbeing as a priority isn't going away."

Karen Fichuk, CEO of Randstad North America, said that while some labor shortages are very likely linked to a lack of childcare and caregiver support, there is also a lot of uncertainty among frontline workers about returning to the workplace.

"Business leaders need to focus on instilling a sense of confidence about their approach to workplace safety," she said.

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