Chief Economist Scott Brown discusses current economic conditions.
Nonfarm payrolls rose about as expected in the initial estimate for July, even as economists’ forecasts were widespread and risks to their job outlooks were generally seen to the downside. The unemployment rate fell a bit more than anticipated, but labor force participation stalled. While the report was essentially a snapshot of the first half of July, as COVID-19 cases were rising, details were consistent with the view that the pace of the economic recovery has moderated. Fiscal support played a key role in the initial rebound in May and June. More will be needed to prevent the economy from relapsing in the near term.
Nonfarm payrolls rose by 1.763 million in the initial estimate for July, up 591,000 before seasonal adjustment. Unadjusted, payrolls fell by 1.040 million in July 2019, reflecting the end of the school year. Some education jobs that would have shown up in July occurred earlier this year, resulting in a seasonally adjusted gain of 268,000. Beyond this quirk, payroll gains were relatively broad-based in July, although improvement was more moderate than in May and June. Nonfarm payrolls fell by 22.1 million in March and April. We’ve added 9.3 million jobs back in May, June, and July. Unadjusted payrolls are down 11.6 million (7.7%) from July 2019.
The unemployment rate fell to 10.2% in July. The classification issue, which led to an under-reporting of the unemployment rate in recent months, remained more limited (at most one percentage point in June and July, vs. five percentage points in April. Labor force participation edged a bit lower in July. There’s a fair amount of noise in the household survey data even in the best of times, but the July figures point to more gradual improvement in labor market conditions. Summer jobs for teenagers and young adults were less prevalent. The employment/population ratio rose to 55.1%, from 54.6% in June and a low of 51.3% in April.
There appear to be a number of forces at work here. The economy has recovered more than a third of the jobs lost due to extreme social distancing in March and April. Some of those returned workers have been laid off again. That may be blamed on a retreat in state re-opening efforts, but there’s evidence that fear of the virus is a more important factor than social distancing directives. Some new jobs have been created (grocery stores, delivery services). Most of the jobs lost in the spring will not be coming back soon. More worrisome, lingering economic weakness will weigh on company earnings, likely leading to further job cuts in the months ahead.