July Jobs Near a Million

Payroll employment is expected to surge by 875,000 for the month of July. Our forecast suggests private sector payrolls alone will rise by 775,000; public sector gains will make up the remainder. Summer camps, private and public, reopened around the country; that should provide an extra boost to gains in employment at the state and local levels.

The seasonal adjustment of the data, which is difficult to estimate in the middle of a pandemic, suggests that risks are to the upside. A small gain in job growth could appear much larger because the usual number of layoffs in July are lower as businesses reopen.

Hiring in the leisure and hospitality sector will drive overall job gains. Retail hiring likely picked up along with warehousing and transportation despite a slowdown in online spending. Doctors, dentists and hospitals are all hiring. Burnout and frustration is highest among those who work in hospitals, where COVID patients are once again overwhelming staff. Attrition has increased. Lack of immigration has curbed the supply of workers we relied on to care for those most vulnerable to COVID, in long-term care facilities.

Bottlenecks and materials shortages will dampen gains in manufacturing and construction employment. Single-family home construction has been the hardest hit by delays; some inputs cannot be found at any price. A young adult I know who helps build homes for charity in the Appalachian mountains told me he couldn't find some of the smallest, most common parts to complete projects.

Average hourly earnings should rise by 0.3% in July, the same as May. That would translate to a 3.8% annual gain. Rising wages for the lowest paid workers are expected to continue driving overall wage gains. The upward pressure on low-wage pay is likely to abate when more people reenter the labor market later this year. Much depends upon the course of COVID. Fear of contagion is cited as a major hurdle for those who are staying on the sidelines, not looking for work.

Separately, the unemployment rate calculated by a survey of households is expected to move down to 5.7% in June, reversing the jump in May. Consumer confidence firmed in July on an improvement in the labor market, which should nudge the participation rate up a tick to 61.7%.

The Federal Reserve has begun to lay out guidelines around a decision to taper asset purchases. More progress in employment is key. Fed Governor Lael Brainard was even more direct in her recent comments than Fed Chairman Jay Powell was last week, implying that a pickup in employment from the pace we saw in the first half of the year (which we are seeing) would go a long way towards meeting the Fed’s prerequisites for tapering. We are holding to our forecast that the Fed will start the process of tapering by year-end.

The Delta variant and the risks it poses to the overall economy depend upon whether schools reopen on time and whether workers’ return to offices and other indoor venues is delayed until more people are vaccinated. We also need to see when the fourth wave of infections crests.

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