Home ›› 08 Aug 2021 ›› World Biz
US employers hired the most workers in nearly a year in July and continued to raise wages, giving the economy a powerful boost as it started the second half of what many economists believe will be the best year for growth in almost four decades.
The Labor Department’s closely watched employment report on Friday also showed the unemployment rate dropped to a 16-month low of 5.4 per cent and more people waded back into the labor force. The report followed on the heels of news last week that the economy fully recovered in the second quarter the sharp loss in output suffered during the very brief pandemic recession.
“We are charting new economic expansion territory in the third quarter,” said Brian Bethune, professor of practice at Boston College in Boston. “The overall momentum of the recovery continues to build.”
Nonfarm payrolls increased by 943,000 jobs last month, the largest gain since August 2020, the survey of establishments showed. Data for May and June were revised to show 119,000 more jobs created than previously reported. Economists polled by Reuters had forecast payrolls would increase by 870,000 jobs. The economy has created 4.3 million jobs this year, leaving employment 5.7 million jobs below its peak in February 2020.
President Joe Biden cheered the strong employment report. “More than 4 million jobs created since we took office,” Biden wrote on Twitter. “It’s historic - and proof our economic plan is working.”
Hiring is being fueled by pent-up demand for workers in the labor-intensive services sector. Nearly $6 trillion in pandemic relief money from the government and Covid-19 vaccinations are driving domestic demand. But a resurgence in infections, driven by the Delta variant of the coronavirus, could discourage some unemployed people from returning to the labor force.
July’s employment report could bring the Federal Reserve a step closer to announcing plans to start scaling back its monthly bond-buying program. The U.S. central bank last year slashed its benchmark overnight interest rate to near zero and is pumping money into the economy through the bond purchases.
“This is the last employment report Chair (Jerome) Powell sees before Jackson Hole, and we have to imagine that he lays the groundwork for a potential September tapering announcement,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “We think the odds continue to rise that tapering begins before the end of 2021.”
Stocks on Wall Street rose, with the Dow Jones Industrial Average and the S&P 500 index hitting record highs. The dollar jumped against a basket of currencies. US Treasury prices fell.
Broad employment gains
Employment in the leisure and hospitality sector increased by 380,000 jobs, accounting for 40 per cent of the job gains, with payrolls at restaurants and bars advancing by 253,000. Government payrolls increased by a whopping 240,000 jobs as employment in local government education rose by 221,000. Education jobs were flattered by a seasonal quirk
Hiring was also strong in the professional and business services, transportation and warehousing, and healthcare industries. Manufacturing payrolls increased by 27,000 jobs, while construction employment rebounded by 11,000 jobs. Retail trade and utilities were the only sectors to shed jobs.
Details of the smaller household survey from which the unemployment rate is derived were also upbeat. Household employment shot up by 1.043 million jobs, leading the unemployment rate to decline half a percentage point to its lowest level since March 2020.
The jobless rate, however, continued to be understated by people misclassifying themselves as being “employed but absent from work.” Without this misclassification, the unemployment rate would have been 5.7 per cent in July.
About 261,000 people entered the labor force, lifting the participation rate to 61.7 per cent from 61.6 per cent in June. The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, rose to 58.4 per cent from 58 per cent in June.
Even more encouraging, the number of long-term unemployed dropped to 3.4 million from 4 million in the prior month. They accounted for 39.3 per cent of the 8.7 million officially unemployed people, down from 42.1 per cent in June. The duration of unemployment fell to 15.2 weeks from 19.8 weeks in June.
