This is the job market we’ve been waiting for
America is back to work.
It’s the simplest and clearest analysis of the labor market that emerges from almost every row in July’s employment figures released on Friday morning. It’s a welcome sign that in the middle of last month the economy is recovering quickly – and that the previous two months have reflected healthier results than previously estimated.
There are some caveats worth mentioning: the surveys on which this data is based were carried out before people were very concerned about the Delta variant of the coronavirus; the share of Americans participating in the labor force has not really changed; and we still haven’t achieved the kind of monthly job gains of over a million that seemed plausible in the spring.
But the overall picture is not particularly nuanced. The labor market is improving and the economy is recovering.
The 943,000 jobs added to employer payrolls in July are impressive in themselves (albeit with an asterisk implying employment in education, more of which below). This is especially true when combined with strongly positive revisions to the May and June numbers.
Prior to the release of the July figures, average job growth over the previous three months was 567,000. Between the new strong figure (943,000) and the revisions, that average has now reached 832,000 jobs. It’s a sign that despite all the headaches reported by businesses trying to attract workers, employers and workers are really connecting at a rate never seen in a recovery from the previous three recessions.
This is evident in the data on the number of people who are working and looking for work.
The share of the adult population that was employed increased 0.4 percentage points in July to 58.4 percent. Other than last year, when the country emerged from pandemic closures, the last time the share of Americans working increased so much in a single month was in May 1984.
This was accompanied by a sharp drop in the unemployment rate. The new unemployment rate of 5.4% (from 5.9%) is the kind of figure that not so long ago would have prompted many economists and central bankers to declare “Mission accomplished” . (The experience of 2018-2019, with unemployment rates sustained around 3.5% – combined with the fact that the share of those working now remains well below pre-pandemic levels – means that you will hear little of such declarations of victory. .)
A broader measure of unemployment – including those unemployed because they have given up looking for a job and people working part-time who want full-time work – fell even further, from 9.8% to 9.2%. The number of Americans who only worked part time due to economic conditions fell by 465,000.
Expect the new numbers to become the heart of the debate over whether the increase in unemployment benefits has been a drag on job creation by causing people not to work. Many states suspended these expanded benefits earlier this summer, which would be reflected in data for July.
The early verdict? Perhaps. The sharp drop in the number of unemployed – 782,000 people – certainly reflects the fact that people are returning to work instead of receiving unemployment benefits. But the strong and steady growth in paid employment in May and June is not what you would expect if unemployment benefits (or lack thereof) were the main driver of the labor market.
Either way, we’ll know more when state-level data is released in the coming weeks.
Education employment in public and private schools contributed to 261,000 jobs combined, but not because schools experienced a strange hiring frenzy in the middle of the summer.
In the normal seasonal pattern, many teachers and other educators lose their school payroll at the end of the school year, which the Ministry of Labor’s seasonal adjustment procedures take into account. But with many schools closed or in limited operation this school year, there have been fewer people losing their jobs, meaning seasonal adjustment appears to signal a deceptive increase in jobs.
There are still a lot of problems in the US economy, and it would be foolish to think that a single month of data, or even a few good months in a row, signals healing from the scars of the pandemic recession. Among other things, the share of the working adult population remains 1.7 percentage points below its pre-pandemic level. And the participation rate barely increased in July.
But there is no doubt, when the employment figures are combined with other recent data, that the trends are heading in the right direction.