Labor market continues slow recovery in July

The country’s economic recovery from the ongoing COVID-19 pandemic continued slowly in July, with total nonfarm payroll employment growing by 1.8 million jobs, the Bureau of Labor Statistics (BLS) reported.

July’s jobs data came as somewhat mixed news, considering the resurgence of coronavirus cases in many parts of the country. And the virus spikes did trigger a setback in the labor rebound, with July’s employment additions numbering far fewer than the 4.8 jobs added in June or the 2.7 million added in May.

But with some observers bracing after national employment company reported earlier in the week that U.S. companies added just 167,000 workers to private payrolls in July, the jobs report also came as a pleasant surprise. Economists had anticipated gains of around 1.5 million, so the additions actually overshot expectations, and the unemployment rate also fell more than predicted from 11.1% to 10.2%.

“The pace of job growth slowed in July,” said Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association (MBA), “but the gains over the past three months represent an impressive rebound during the ongoing economic challenges brought forth by the pandemic.”

Gains were broad-based, with construction, health care, education and manufacturing all adding workers. Much of July’s job recovery came in the retail and leisure sectors — areas that were rapidly and intensely impacted by COVID-19 and the measures enacted to curb its spread. Employment in leisure and hospitality grew by 592,000, making up about a third of the month’s total job gain. Retail, meanwhile, added 258,000 jobs, with nearly half of that growth occurring in clothing stores.

Zillow economist Matthew Speakman noted that perhaps the most encouraging news came via reported levels of “persistent unemployment,” or job losses that aren’t considered temporary. Measures of such levels either decreased or flattened month over month in July.

Fratantoni made a similar observation.

“Although 9.2 million people remain temporarily unemployed, another 1.3 million workers have been called back to work, and the number of permanent layoffs remained steady at 2.9 million,” Fratantoni said.

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Still, there is much in the jobs report of concern to economists. Fratantoni remarked that, while the unemployment rate dropped, it remains higher than the peak jobless rate during the Great Recession. Broader measures of underemployment, such as the U-6 rate which also takes into account discouraged workers who have stopped seeking jobs and part-timers seeking full-time work, also remain high. And the number of discouraged workers appears to be growing, with the labor force participation rate posting a slight drop in July.

More and more out-of-work people becoming detached from the market will prolong the labor recovery, Speakman said.

“The key takeaway from today’s report is that the labor market still has a long way to go in its recovery,” said Speakman. “The pace of improvement slowed noticeably in July at levels that are still alarmingly poor … and after several months of unprecedented monetary and fiscal support, the economy has recovered just 42% of the jobs lost from February through April.

“If the market were to continue at July’s pace of improvements — which, in normal times, would be remarkably strong but these days is quite tepid — it would take another eight months to reach February levels.”

Notably, the government continues to grapple with counting the unemployed, with the BLS self-reporting the issue of misclassified workers earlier in the year. The share of misclassified responses has been decreasing, the BLS said; if misclassified workers were included, July’s unemployment rate would have registered about one percentage point higher.

Interestingly, Fratantoni said that both the positives and negatives of July’s report have the potential to bolster the resilient housing market.

“MBA’s Weekly Application Survey continues to show robust demand for home sales, and record-low mortgage rates are fueling an ongoing refinance wave,” he said. “Today’s report should continue to support both: the return of jobs will keep housing demand strong, and the high level of unemployment ensures that the Federal Reserve will keep rates at zero — meaning mortgage rates will stay low for an extended period of time.”


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