Jobs Data Reflects Mostly Re-Hiring from Temporary Layoff

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In a much-anticipated jobs report, the Department of Labor released data today showing continued hiring in July despite a surge in coronavirus cases, albeit at a slower pace than in previous months. The U.S. economy added 1.8 million jobs in July – in line with consensus estimates – but down from 4.8 million new jobs in June and 2.7 million in May. 

Job gains were broad-based in July, but most of the gains were in industries hit hard by the pandemic. Leisure and hospitality added the most jobs (+592,000), nearly one-third of the monthly total. Additional job gains occurred in retail (+258,000), professional and business services (+170,000), and health care (+126,000).

The government sector also posted significant job gains in July (+301,000) but this was mostly attributable to the impact of seasonal adjustment factors. The BLS release notes that public-sector education employment typically declines in July (before seasonal adjustment), but those declines occurred earlier than usual this year due to the pandemic. Consequently, the normal application of post-survey seasonal adjustment factors resulted in unusually large increases in local government education (+215,000) and state government education (+30,000) for July. 

The unemployment rate declined by 0.9 percentage points to 10.2 percent, and the number of unemployed persons fell by 1.4 million to 16.3 million. Notably, the decline in unemployed can be almost fully explained by a similar decline in the number of persons out of work due to temporary layoff (1.3 million). This suggests that the improving job picture is mostly one of re-hiring, not net new hiring.

Unemployment Rate - July

Also, it is important to note that despite three months of improving job data, unemployment remains historically high. Before the coronavirus drove the U.S. into a deep recession this year, the unemployment rate was hovering around a 50-year low of 3.5 percent. Moreover, given the current pace of viral spread across the U.S., which now extends into rural areas, it is reasonable to expect the pace of rehiring to slow further and potentially even reverse if mitigation measures aren’t able to control the virus.

The July jobs report comes at a critical inflection point as House Democrats and the Trump White House negotiate the parameters of a fifth – and perhaps final – pandemic relief package. At issue are several employment-related income-support programs such as the extension of the $600 per week supplemental unemployment insurance benefit in the CARES Act, additional food aid, and reinstatement of the federal moratorium on evictions. The data in today’s job report – including the impact of technical seasonal adjustment factors on state and local government employment – should help inform their decision-making. 

Initial Unemployment Claims Drop

The number of new applications for unemployment insurance fell by 249,000 to 1.2 million for the week ending August 1, the Labor Department said in a separate report released Thursday. Initial claims have dropped steadily from a peak of nearly 7 million in late March, but still remain well above the pre-pandemic record of 695,000 set in 1982. Overall, more than 31 million Americans are collecting some form of unemployment insurance benefits.

The Thursday numbers were better than anticipated: consensus estimates pegged initial claims at 1.4 million. Still, unemployment claims remain stubbornly high. That said, some economists suspect that expiration of the $600 per week supplemental unemployment benefit on July 31 may be clouding signals in the labor market.

Initial UI Claims - Aug 1





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