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Workers Showed, Employers Hired

RFP
Employment surged by 943,000 jobs in July and was revised up to 938,000 in June. Those data are pre-Delta variant but in line with what the Federal Reserve is looking for to make a decision to taper asset purchases. The timing now rides on the August employment report, which could soften in response to the spread of the Delta variant, but tapering is now pretty much baked into the cake by year-end. The economy has proven more resilient through each additional wave of infection, although an increase in vaccinations is needed to break the cycle on variants.

Over half of all job gains during July could be attributed to increases in just two sectors: public education and leisure and hospitality. The not-seasonally adjusted data for public education actually fell, but not as much as usual. That reflects school districts ramping up for summer programs that were cancelled last year and preparing to reopen schools for in-person learning. Two-thirds of the new jobs in leisure and hospitality occurred in food services, although we are seeing more broad-based gains as travel and tourism improve.

The health care sector continued to post solid but not spectacular gains. Burnout is rampant, as are quit rates. Some workers are walking off shifts in areas hardest hit by the pandemic, areas where vaccination rates remain low. The one type of hiring that continues to contract is at nursing homes and long-term care facilities. Many workers have left the field entirely due to the surge in fatalities at facilities earlier in the pandemic.

Professional services posted strong gains, with continued strength in the hiring of accountants. We have seen jobs in accounting not only recoup losses to the pandemic, but soar to new heights.

Hiring in warehousing and transportation remained strong but retail lost jobs. That was because of problems on the supply side more than lack of demand. Auto dealers cut staff as a dearth of inventories constrained sales, while many retailers continued to add incentives to bring back workers from the sidelines. Target recently announced it would provide education incentives for frontline workers.

Manufacturing employment posted less spectacular gains. Supply chain bottlenecks continue to be a hurdle to ramping up. The Delta variant has hit developing economies that escaped earlier waves of the virus, including Taiwan, which has a chokehold on computer chip production. Hours worked in the manufacturing sector picked up, but not for overtime; overall hours remain unchanged for the month.

Average hourly earnings moved up 11 cents an hour to $30.54. Low-wage workers are having a moment in the sun after decades in the shadows. The jump in wages from large employers who are able to adopt new technologies to absorb those increases is driving that shift. Small mom-and-pop shops are finding it harder to compete.

Separately, the unemployment rate plummeted to 5.4%, after jumping to 5.9% in June. Participation edged slightly higher as more workers looked for jobs. Job searches have been stronger in highly vaccinated states but moved a bit higher overall in July, which could bode well for hiring in August. Much will depend on the Delta variant and how much of a toll it takes on activity. A reinstatement of mask mandates has sent some office workers back home, which increases the impact on large urban centers.

Sadly, participation by Black men and women of color fell during the month. Those losses underscore a point that Fed Chairman Jay Powell has made; it takes longer for employers to cast their nets wider to reach the most marginalized workers. These are often workers who have suffered more infections, which includes long-haul COVID, which can limit their ability to work.

The good news in this report was the drop in the ranks of the long-term unemployed, which fell by more than half a million. The total of long-term unemployed is still 3.4 million, 2.3 million above the pre-pandemic high, but the trend is going in the right direction.

Bottom Line
The recovery in employment is getting to a place where the Fed needs to seriously consider tapering its asset purchases to avoid an unnecessary overshoot on inflation. The economy has become more resilient through outbreaks. That ups the risk of a misstep and the need for the Fed to extinguish unwanted inflation, something it has not had to do in decades.

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