July jobs report: in which an absolute positive blowout make me happily wrong

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July jobs report: in which an absolute positive blowout make me happily wrong; all pandemic job losses now recovered

 –  by New Deal democrat

As I wrote earlier this week, the short leading indicators for both jobs (real retail sales) and the unemployment rate (initial jobless claims) have each signaled that we should expect weaker monthly employment reports, with both fewer new jobs and a higher unemployment rate. I have been noting this ever since February, when consumption growth started to flag, It already had shown up by last month, as the 3 month average in new jobs decelerated from over 500,000 to 383,000.

Secondarily, as of last month we were only 550,000 jobs shy of the pre-pandemic level. Would we finally get there?

The complete opposite happened in July, as job gains surged and the unemployment rate declined further. Together with the upward revisions to the last two months, as of now there are 22,000 MORE jobs than there were just before the pandemic. Further, the skew of those jobs is away from lower paying sectors towards higher paying ones. Here’s my in depth synopsis:

HEADLINES:

• 528,000 jobs added. Private sector jobs increased 471,000. Government jobs increase by 57,000. 
• The alternate, and more volatile measure in the household report indicated a  gain of 179,000 jobs. The above household number factors into the unemployment and underemployment rates below.
• U3 unemployment rate declined 0.1% to 3.5%, equal to the January 2020 low.
• U6 underemployment rate was unchanged at 6.7%, tied for its all-time low.
• Those not in the labor force at all, but who want a job now, rose 254,000 to 5.910 million, compared with 4.996 million in February 2020.
• Those on temporary layoff declined -36,000 to 791,000.
• Permanent job losers declined -107,000 to 1,166,000.
• May was revised upward by 2,000, and June was also revised upward by 26,000, for a net increase of 28,000 jobs compared with previous reports.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and will help us gauge whether the strong rebound from the pandemic will continue.  These were completely positive:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour to 41.1 hours.

• Manufacturing jobs increased 30,000, and is at a level higher than it was before the pandemic.
• Construction jobs increased 32,000. All of the jobs lost during the pandemic  have also been made up in this sector. 
• Residential construction jobs, which are even more leading, rose by 2,900.

• Temporary jobs rose by 9,800. Since the beginning of the pandemic, over 250,000 such jobs have been gained.
• the number of people unemployed for 5 weeks or less declined by -182,000 to 2,080,000, which is also below its pre-pandemic level.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $0.11 to $27.75, which is a 6.2% YoY gain, a further decline of -0.2% from last month and its 6.7% peak at the beginning of this year.

Aggregate hours and wages:

• the index of aggregate hours worked for non-managerial workers rose by 0.3%, which is above its level just before the pandemic.
•  the index of aggregate payrolls for non-managerial workers rose by 0.8%, which is below the average inflation gain of 0.9% in the past 3 months.

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 96000, but are still -7.1% below their pre-pandemic peak.
• Within the leisure and hospitality sector, food and drink establishments added 74,100 jobs, but are still about 635,000, or -5.1% below their pre-pandemic peak.
• Professional and business employment increased by 89,000, which is about 1,000,000 above its pre-pandemic peak.
• Full time jobs declined -71,000 in the household report.
• Part time jobs increased 384,000 in the household report.
• The number of job holders who were part time for economic reasons increased 308,000 to 3,924,000, above last month’s 20 year low.
• The Labor Force Participation Rate declined another -0.1% to 62.1%, vs. 63.4% in February 2020.

SUMMARY

This report was an unexpected blowout, plain and simple. All of the pandemic job losses have been made up. We are near or at all-time lows in both the unemployment and underemployment rates. *All* of the leading indicators in the report were positive, meaning we should not expect the jobs sector to roll over anytime in the immediate future. Temporary layoffs declined. The only area still lagging is in the lower-paying leisure and hospitality sector, while there are almost 1,000,000 *more* higher paying jobs in the professional and business sector.

There were a few warts. Average hourly earnings once again did not keep up with inflation, a significant negative. The decline in unemployment was helped by a *lower* labor force participation rate. The number of full time jobs actually declined.

The strength of the jobs market has been the best reason why the US is not currently in a recession. This report added to that argument.

On the other hand, I want to caution that some of the great news in this report may be due to comparisons with the distortions of the last two summers, particularly with regard to temporary and education jobs. In other words, we might give this back come September. Leading indicators are still leading, and unless consumers use their new gas savings to spend on other stuff, I still expect job gains to flag in coming months. But for this month, I was very happily wrong.