Job creation slowed in July to a level that, under any other scenario, would be considered outstanding. Employers added nearly 1.8 million to payrolls — well above expectations of 1.5 million, and revisions to the past two months were limited. The result was a decline in the ranks of the unemployed for the third consecutive month, pulling the jobless rate down to 10.2%.
The improvement in nonfarm payrolls also marks the third consecutive month of exceptionally strong job creation since the pandemic broadsided the U.S. economy. Those gains come after the largest single-month decline in history, leaving a significant hole to be filled. Moreover, labor market conditions have been improving since the depths of April’s plummet, but there are growing signs that the recovery has lost momentum in the past month.
Initial jobless claims remain quite high by historical standards and, while the most recent report showed improvement, new claims were still in excess of 1 million. Today’s report provides further evidence of a slowdown in progress, particularly in the total payrolls tally. Coming off a considerably strong June tally of nearly 4.8 million, the July gain of under 1.8 million illustrates the marked reduction in sidelined workers returning to the ranks of the employed.
Of particular concern is the resurgence in both COVID-19 diagnoses and deaths in recent weeks, not only because of the health risk posed by the virus, but the joint consequent economic risk from the policies aimed at curtailing its spread and cautious consumer behavior. Much of the progress on the labor front hinged on the lifting of various restrictions earlier this summer. As policymakers weigh their next steps, they must balance between reducing health risks and the unintended, but potentially significant, consequences for the economy and for impacted workers and their families.
Attention in recent days has turned to Congress, as policymakers work to finalize an extension to the extra $600 a week in unemployment benefits, which expired last week. Beyond political considerations, the challenge for policymakers is in striking a balance between providing a benefit that may disincentivize some from returning to work with the need of continuing to provide some degree of income replacement to families that have leaned on that support to stabilize their finances. With unemployment still comparable to the high point of the last cycle, it’s clear that some degree of additional support will be needed as the economy gradually regenerates.
The bottom line is largely unchanged: The economy is expanding, but the pace of improvement has slowed. Labor market conditions remain challenged as employers adopt an understandably cautious stance in bringing back workers sidelined by the pandemic and resulting economic disruption. With multiple sources of lingering uncertainty, it’ll take time for labor market conditions to return to pre-pandemic normal.
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