A Gold Medal for July’s Jobs Report

U.S. Payrolls expand by 943k in July

I am writing from Key West, Florida and at any moment I will be doused in beer. Before that happens and my keyboard malfunctions, let me point out the obvious: July’s jobs report was a gold medal winter. Payrolls expanded by 943k and unemployment plummeted to a pandemic-era low of 5.4%. Not only have we Americans won more medals than any other nation (by far), we’ve now recovered 75% of the 22.4 million jobs lost between February and April 2020. At July’s pace of job creation, we’ll reach full labor market recovery by January 2022. That’s not so far away.

There were two big winners this month. Restaurants and bars added 253k jobs for the month, a pace reminiscent of Caleb Dressel’s abs-ablaze surge down the homestretch in the 100 meters. While the restaurant/bar segment is still about 970k jobs (-7.9%) below the February 2020 employment level, rapid hiring remains apparent and may become even more so once stepped-up unemployment insurance benefits expire early next month.

In the Olympics, the key concept is sacrifice as athletes train endlessly for one glorious moment every 4 years. Employers have been making a sacrifice of sorts as well. To match supply with demand and attract enough workers, they have been paying meaningfully higher wages. Average hourly earnings for restaurant and bar employees are up 10.7% since the start of 2020 and increased 1.2% over the most recent month for which data are available.

The silver medal for job creation goes to public schools, which added 221k jobs in July. This one is easy to explain—it’s back to school time, with almost all schools returning to in person learning, often with new mask mandates. Public school employment is now just 2.6% below February 2020 levels, closer to full recovery than the entire nonfarm economy (3.7% below February 2020 levels).

I know there’s an (admittedly half-assed) Olympic theme here, but no other single segment deserved a bronze medal—it’s a big fat tie. Other than restaurants/bars and public schools, job creation was neatly distributed across segments in July. Hotels added jobs at a rapid clip for the month but remain a long way from complete recovery. If issues related to travel (rental car prices, canceled flights, insane people on airplanes, delta variant, etc.) get resolved, it would be a huge help to the hotel industry.

There were a few underperformers in July. Nursing homes lost jobs, which I sloppily address below, and nonresidential building construction employment declined (you can read my in-depth thoughts regarding that over at Associated Builders and Contractors).

Three Key Takeaways

1. Nursing and residential care facilities lost 13,400 jobs in July. The industry has struggled to attract workers since the onset of the pandemic, and with many employers requiring vaccinations, the segment’s hiring may lag the broader economic recovery for many months to come.

2. Gen Z is having a rough time (oh, the drama!). The unemployment rate for those aged 20–24 was unchanged in July at 9.1%, while the unemployment rate for 25+ dropped from 5.4% to 4.8%. Graduating into a recession is never fun—just ask a Millennial.

3. The labor force expanded by 261k people in July and the labor force participation rate ticked up to 61.7%. That’s still 1.6 pp below February 2020 levels. Not great, but there’s reason for optimism. With schools going back to in-person learning and a range of pandemic-related government benefits expiring, there’s reason to think that more would-be workers will flock back to the labor force in coming months.

What to Watch

Delta Variant. Cases are surging (especially in areas with low vaccination rates), but the number of deaths remains low. This has replaced inflation as the leading threat to the ongoing recovery.