Employment Slows in July

Payroll employment rose by 1.8 million in July, a small fraction of the 4.8 million in June. Private payrolls increased by 1.5 million; public payrolls jumped by a surprising 301,000 jobs. A third of private sector gains - 502,000 - were driven by workers being called back to restaurants and bars. Those who were temporarily unemployed dropped by 1.3 million. At the current pace, it would take well into 2021 to recoup the 12.9 million jobs lost since February.

The much stronger-than-expected jump in public sector employment was misleading. A quirk in how the data was seasonally adjusted turned a decline in state and local government payrolls into a gain. Federal payrolls rose by 27,000 as more temporary workers came on board to complete the 2020 census; those jobs could be cut as soon as September. There is a push by the Commerce Secretary to complete the census early, which could result in an undercount, especially for hard-to-reach, low-wage Black and Hispanic households.

Retail hiring picked up at traditional department stores, clothing and accessory stores. Malls reopening played a large role in supporting those gains. We also saw solid gains in health care and social services. Everything from a pickup in elective surgeries to catch-up in appointments from the lockdowns helped buoy gains in hospitals, physicians’ and dentists’ offices. Long-term care facilities took a hit as families scrambled to move their loved ones home to better protect them from contagion.

We saw a surge in hiring at daycare centers as they reopened. Many are still struggling at a fraction of their previous capacity as parents have been reluctant to use daycare centers while the pace of COVID infections remains high.

A pickup in vehicle production offset losses elsewhere in the manufacturing sector. Mining continued to shed jobs. Construction posted modest gains as cases of COVID-19 surged across some of the strongest construction markets in the Sunbelt.

Average hourly earnings rose seven cents to $29.39 per hour, up 4.8% from a year ago. However, those gains largely reflect the fact that high-wage workers account for more of the labor market today than they did a year ago. In fact, some firms actually cut wages at the onset of the crisis to preserve cash flow and limit layoffs at the onset of the crisis; that is masked by the shift in the composition of jobs this year relative to last year.

The household survey showed that the unemployment rate fell to 10.2% in July from 11.1% in June. The number of workers classified as absent from work due to COVID-19, instead of unemployed, fell precipitously. Adjusting for that misclassification added 1% to the overall unemployment rate. That is down from a 5% misclassification of the unemployed in April. The unemployment rate fell across the board but less for Black people than other groups.

The participation rate fell by 0.1 percentage points to 61.4% after regaining ground in May and June and remained well below the 63.4% high hit prior to the crisis. The employment-to-population ratio edged up to 55.1% but remained near record lows. The bulk of the increase in the employment-to-population ratio was concentrated among Asians.

Bottom Line
Employment gains slowed in July and are poised to weaken further in August. The surge in employment at the state and local levels will no doubt reverse, given gridlock over a federal aid package including much-needed funding for the states. The fact that many school districts have decided to stay online in the fall semester will take a toll on hiring for education, come August.

This is all against the backdrop of a lapse in unemployment benefits, which will curb spending in the months to come. In the months to come, food insecurity and homelessness are expected to rise to the worst levels since the Great Depression.

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