US labour market makes solid gains as worker shortages ease


The US labour market added 943,000 jobs in July and the unemployment rate dropped to 5.4 per cent, in a sign that some of the worker shortages that have hampered the economic recovery have begun to ease.

Non-farm payrolls data released by the Bureau of Labor Statistics on Friday came in well above economists’ expectations for 870,000 new positions, and surpassed the upwardly revised 938,000 jobs created in June. The unemployment rate, which dropped from 5.9 per cent in June, is at its lowest level since the beginning of the pandemic.

The gains in July, which were the largest since August 2020, were most pronounced in the leisure and hospitality sectors, with employment increasing 380,000 as restaurants and hotels raised wages and ramped up hiring. Since May, average hourly earnings for these workers have climbed 2.7 per cent.

Education-related local government jobs experienced a big boost too, but the BLS warned of distortions in the data.

Line chart of Shortfall in non-farm payrolls since January 2020, m showing US employment still a ways off from pre-pandemic levels

“Staffing fluctuations in education due to the pandemic have distorted the normal seasonal build-up and lay-off patterns, likely contributing to the job gains in July,” it said in its report.

“Without the typical seasonal employment increases earlier, there were fewer lay-offs at the end of the school year, resulting in job gains after seasonal adjustment. These variations make it more challenging to discern the current employment trends in these education industries.”

Excluding government jobs, private payrolls as a whole rose 703,000 in July.

“You have seen the labour market shift into a higher gear this summer, and workers are beginning to come back to the labour force,” said Sarah House, senior economist at Wells Fargo.

The figures are being watched by policymakers, who are engaged in a fierce debate about how much support the world’s largest economy needs as it emerges from the Covid-19 shock. 

Economic growth has rebounded sharply, bringing US output back above its pre-pandemic level for the first time. Consumer prices nationwide have also surged, but the labour market has been slower to heal. Childcare issues, concerns about catching Covid-19 and enhanced unemployment benefits have been cited by policymakers as factors that have deterred Americans from filling a record number of job openings. 

US president Joe Biden hailed July’s labour market gains as an indication of the success of his economic policies.

“What is indisputable now is this: the Biden plan is working,” he said. “Economic growth is the fastest in 40 years. Jobs are up. The unemployment rate is the lowest since the pandemic hit. Black unemployment is down as well. Why? Because we put in place the necessary tools early in my presidency,” he said, although he cautioned that the recovery is “far from complete”.

Despite July’s increase, 5.7m more Americans remain out of work than in February 2020, before the onset of coronavirus — and House warned that the rapid spread of the Delta variant could further delay a return.

“We are still going to see the jobs markets get better and workers coming back, but it may not happen quite as fast,” she said.

The labour force participation rate, which tracks the number of Americans employed or looking for a job, has remained little changed in recent months, despite efforts by employers to attract workers. Some companies have raised wages, while others have offered further incentives. 

In July, the rate was 61.7 per cent, roughly in line with the previous month. Average hourly earnings more broadly ticked up 0.4 per cent per cent from June, for a year-on-year increase of 4 per cent.

Column chart of Change in total US non-farm payrolls (m) showing US labour market on the mend

Global government bond markets sustained selling pressure after the stronger than expected figures. The US 10-year Treasury yield increased by 0.06 percentage points to 1.28 per cent, and yields also rose in the UK and continental Europe.

Investors paid particularly close attention to this month’s data because it comes just weeks before the annual meeting of central bankers in Jackson Hole, Wyoming.

The strong jobs report may compel the Federal Reserve to more seriously consider the scaling back of its $120bn-a-month bond-buying programme — a pace it said it would maintain until it achieved “substantial further progress” on its dual goals of maximum employment and core inflation that averages 2 per cent. 

In a letter on Thursday, Joe Manchin, a Democratic senator from West Virginia, urged Fed chair Jay Powell to “immediately reassess our nation’s stance [on] monetary policy and begin to taper your emergency stimulus response”, warning of an overheating economy and high inflation without an adjustment.

But many Fed officials have made the case that more progress is still needed on the labour market front.

“The data suggest meaningful ‘progress’ continues, but we still think Fed officials will need to see several more months of strengthening to achieve their ‘substantial further progress’ tapering criterion,” Jim O’Sullivan, chief US macro strategist at TD Securities, said. “Also, we don’t 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 1m in July and August could set the stage for an announcement in September, while others including Richard Clarida, vice-chair, and San Francisco Fed president Mary Daly have recently floated the idea of an end-of-year move if the economy improves as expected.

Powell has not offered as specific a timeline, but he expressed confidence in the outlook at a press conference following the latest monetary policy meeting last week.

“We’re clearly on a path to a very strong labour market with high participation, low unemployment, high employment, [and] wages moving up across the spectrum,” he said.

Leave a Reply

Your email address will not be published. Required fields are marked *