U.S. Jobs: Surprisingly Strong July Confounds Conventional Wisdom

I think it's safe to say that everybody who follows the labor market — and I mean everybody — was pleasantly surprised by this morning's Employment Situation Summary from the U.S. Bureau of Labor Statistics. The Washington Post front page mentions "shattering expectations" and its headline trumpets "more than doubling expectations."

NPR's headline calls out "a surprisingly positive sign for the economy," and its lead paragraph mentions "surprising strength in the face of high inflation and softening economic activity." Even the more staid Wall Street Journal was impressed.

The WSJ recap mentioned "strong hiring" and even conceded that "industries vulnerable to the Federal Reserve's interest-rate increases performed well in July," calling out finance, construction and manufacturing as cases in point. What’s going on here?

Broad, Across-Board Hiring Activity Continues

In its own restrained way, the official report marks another major milestone, too. It says: "Both total nonfarm employment and the unemployment rate have returned to their February 2020 pre-pandemic levels." That means the jobs market has clawed back all the horrendous job losses inflicted by the COVID pandemic — in just 29 months (under 2.5 years).

I think it’s noteworthy and remarkable and worth pausing for a moment to understand that we’re back to where we were before the pandemic started. Good-oh!

Reviewing the Numbers

Given that the monthly average gain over the preceding four months (March through June) was 388,000, 528,000 represents a whopping 36 percent jump. Job growth covered most industry sectors that the U.S. BLS tracks in July, with leisure and hospitality, professional and business services, and healthcare in the lead.

Total employment has rebounded by 22 million since hitting its low point in April 2020, with private-sector employment actually 629,000 jobs higher that February 2020 levels (more on that to come, in the details below). Government employment is about 597,000 jobs below that same watermark level.

Here’s how the July numbers break down across industry sectors:

Leisure and hospitality added 96,000 jobs in July with most of that (74,000) in food services and drinking places. This sector remains behind February 2020 levels, still down by 1.2 million jobs (7.1 percent).

Professional and business services grew by 89,000 jobs in July, of which between 10,000 and 13,000 went to management of companies and enterprises (+13,000), architectural and engineering services (+13,000), management and technical consulting services (+12,000), and scientific research and development services (+10,000). Overall, this sector is 986,000 higher than it was in February 2020.

Healthcare gained 70,000 jobs, with 47,000 going to ambulatory healthcare services, 13,000 to hospitals, and 9,000 to residential and nursing care facilities. This sector is slightly down from February 2020 levels (78,000 or 0.5 percent). I expect it will hit parity soon, perhaps next month.

Government added 57,000 jobs, but is still down by 597,000 (2.6 percent) from February 2020 levels. Of that number, 37,000 jobs were in local government (primarily education-related). Local government employment levels are down by 555,000 from February 2020 (3.8 percent).

Construction employment grew by 32,000 jobs for July, of which 22,000 jobs went to specialty trade contractors. This sector is up from February 2020 by 82,000.

Manufacturing gained 30,000 jobs in July, of which 21,000 went to durable good industries, and 4,000 jobs each to semiconductors and electronic components plus miscellaneous durable goods. This sector is 41,000 above its February 2020 levels.

Social assistance added 27,000 jobs, of which 19,000 wen to individual and family services. This sector is down from February 2020 levels by 53,000 jobs (1.2 percent).

Retail trade gained 22,000 jobs after holding steady since March, of which 9,000 went to food and beverage stores and 8,000 to general merchandise outlets. Employment in this sector is 208,000 higher than February 2020 levels.

Transportation and warehousing added 21,000 jobs, of which air transportation got 6,000 and support activities for transportation got 6,000. Employment in this sector is 745,000 higher than it was in February 2020.

Information grew by 13,000 jobs, and is now 117,000 higher than it was in February 2020.

Financial activities gained 13,000 jobs, and is now 95,000 higher than in February 2020.

Mining added 7,000 jobs, with 4,000 of that for mining, and another 2,000 for oil and gas extraction. Mining is 96,000 higher than its recent low point in February 2021.

Wholesale trade and other services were the only sectors that held steady from June to July.

Of the sectors covered, only leisure and hospitality, healthcare, and government are still behind February 2020 levels, and none is more than 7.1 percent behind (leisure and hospitality), with health care at about 0.5 percent back and government 2.6 percent off for non-local and 3.8 down for local.

Other sectors show significant gains, especially professional and business services, transportation and warehousing, and retail trade. I think we’re seeing signs of how jobs are allocated across the economy are shifting to reflect a changing labor force and employment needs and patterns.

The Inflation Battle Continues, With Inflation Still in the Lead

Wages continue upward growth, and show an increase of 15 cents per hour for hourly pay in July, to $32.27 per hour. Over the last 12-month period wages are up by 5.2 percent. Alas, the U.S. inflation rate hit 9.1 percent in June, as it continues to climb ever higher.

That means wages still have to increase by almost double to keep workers’ purchasing power at parity. If previous months are any indication it could take six months or longer for things to settle down (or catch up).

What’s Next?

Much of the reporting around the July numbers makes mention of a so-called "soft landing" as the economy continues to contract. It's odd to see such strong job growth at the end of the second of two quarters of economic shrinkage.

That brings hope to economists who would like to see the economy shrink without major labor reductions to match, as is more often the case during a recession than not. You could say that while they expected "the other shoe" to drop this month, it hasn’t dropped yet.

All of this makes next month's report even more interesting and fraught than usual. Stay tuned, and I'll report back in when we survive to get another installment in this ongoing show.

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