The U.S. labor market added 943,000 jobs in July and the unemployment rate fell to 5.4 percent, a sign that some of the labor shortages that have hampered economic recovery are beginning to ease.
Nonfarm payroll data released Friday by the Bureau of Labor Statistics was well above economists’ expectations for 870,000 new positions, surpassing the upwardly revised 938,000 jobs created in June. The unemployment rate, which fell from 5.9 percent in June, is at its lowest level since the start of the pandemic.
The July increases, the largest since August 2020, were most pronounced in the leisure and hospitality sector, where employment grew by 380,000 as restaurants and hotels raised wages and boosted hiring. Since May, the average hourly wage of these workers has risen by 2.7 percent.
Education-related jobs in local government also received a big boost, but the BLS warned of distortions in the data.
“The workforce fluctuations in education caused by the pandemic have disrupted normal seasonality and layoff patterns, which likely contributed to job growth in July,” it said in its report.
“Without the typical seasonal employment gains earlier, there were fewer layoffs at the end of the school year, resulting in seasonally adjusted job gains. These variations make it more challenging to discern current employment trends in these education sectors.”
Excluding government jobs, private payrolls as a whole rose 703,000 in July.
“You’ve seen the job market shift into high gear this summer and workers are starting to return to the workforce,” said Sarah House, senior economist at Wells Fargo.
The numbers are being looked at by policymakers, who are embroiled in a heated debate about how much support the world’s largest economy will need if it emerges from the Covid-19 shock.
Economic growth has recovered strongly, bringing US production back above pre-pandemic levels for the first time. Consumer prices across the country have also risen, but the labor market is recovering more slowly. Childcare issues, concerns about catching Covid-19 and increased unemployment benefits are cited by policymakers as factors that have deterred Americans from filling a record number of job openings.
Despite the rise in July, 5.7 million Americans remain unemployed than in February 2020, before the onset of the coronavirus — and House warned that the rapid spread of the Delta variant could further delay a return.
“We’re still going to see job markets get better and workers come back, but it might not happen as soon,” she said.
The employment rate, which tracks the number of Americans working or seeking a job, has changed little in recent months, despite efforts by employers to attract workers. Some companies have increased wages, while others have offered additional incentives.
In July the percentage was 61.7 percent, roughly in line with the previous month. Average hourly wages rose 0.4 percent overall from June, representing a 4 percent year-on-year increase.
Global government bond markets continued to push selling after stronger-than-expected data. The US 10-year yield rose 0.06 percentage point to 1.28 percent, and yields also rose in the UK and continental Europe.
Investors have been paying particular attention to this month’s data, as it comes just weeks before the annual central bankers’ meeting in Jackson Hole, Wyoming.
The strong jobs report may prompt the Federal Reserve to seriously consider scaling back its $120 billion-a-month bond-buying program — a pace it said it would continue until it made “substantial further progress” on its investment. dual targets of maximum employment and core inflation averaging 2 percent.
In a letter on Thursday, Joe Manchin, a Democratic senator from West Virginia, urged Fed Chairman Jay Powell to “immediately reconsider our nation’s stance. [on] monetary policy and start tapering your response to emergency stimulus,” a warning of an overheated economy and high inflation without adjustment.
But many Fed officials have argued that more progress is still needed on the labor market — a threshold that, according to Jim O’Sullivan, chief of US macro strategist at TD Securities, had not been fully met despite hefty July gains. .
“The data suggests the meaningful ‘progress’ continues, but we still think Fed officials will need to see several more months of strengthening to reach their ‘substantial further progress’ step-by-step criterion,” he added. “In addition, we do not expect the data for August to be as strong as the data for July.”
Fed Governor Christopher Waller said this week that job gains of 800,000 to 1 million in July and August could set the stage for a September announcement, while others, including Vice Chair Richard Clarida and San Francisco Fed President Mary Daly recently suggested the idea of a year-end move if the economy improves as expected.
Powell didn’t provide a specific timeline, but he expressed confidence in the outlook at a news conference after last week’s last monetary policy meeting.
“We are clearly moving towards a very strong labor market with high participation, low unemployment, high employment, [and] wages are rising across the spectrum,” he said.