July Jobs Report - Unemployment

Data: Jobs Undershot Reverses July Strength

The July jobs report undershot estimates for payrolls, the workweek, and hours worked that reversed the broad-based overshoots reported last month, alongside surprisingly strong hourly earnings data, and solid household figures that allowed a jobless rate drop to a new cycle low of 5.2%. The education sector actually subtracted -26k from payrolls, explaining some of the miss, while prior payrolls were raised by 135k, hence mitigating the damage. Yet, the workweek and hours-worked data were revised down substantially in June and July.

July Jobs Report - Unemployment
July Jobs Report – Unemployment

For the report specifics, we saw a 243k nonfarm payroll gain that undershot estimates after 135k in upward revisions, with an expected 40k goods sector rise alongside a but a surprisingly lean 203k service job gain. We now have nonfarm payroll gains of 1,053k (was 943k) in July and 963k (was 938k) in June.

We saw a 243k private payroll rise after 135k in upward revisions. Government jobs fell -8k after no net revisions. We saw a -26k drop in state and local education employment that defied expectations of a big seasonally-led gain.

The workweek sat at a disappointing 34.7 for a third month (was 34.8 in both June and July), after 34.8 in May, 34.9 in March and April, and 34.6 in February. We saw a 21-year high of 35.0 in January that was seen through much of 2000.

We saw a lean 0.2% hours-worked rise after a 0.6% July gain but a trimmed 0.4% (was 0.6%) gain for June.

For the goods sector breakdown, we saw gains of 37k for factories and 6k for mining, but a -3k drop for construction. The goods sector revealed a -0.1% hours-worked drop, with declines of -0.1% for factories and -0.3% for mining, and a flat figure for construction. We saw a 0.3% hours-worked rise for the private service sector.

The 0.6% August hourly earnings rise followed huge gains of 0.4% in both June and July, 0.5% in May and 0.7% in April. The y/y hourly earnings rise climbed to 4.3% from 4.1% (was 4.0%) in July, 3.7% in June, 1.9% in May and 0.3% in April.

The household data were solid, alongside a jobless rate drop. We saw August gains of 509k for civilian jobs and 190k for the labor force, following respective huge July gains of 1,043k and 261k.

The jobless rate fell to 5.2% (5.19%) in August from 5.4% (5.39%) in July and 5.9% (5.89%) in June, versus a 14.77% peak in April of 2020. We saw a 3.55% low from the last cycle in December of 2019 and a 9.98% prior cycle-high in October of 2009.

labor participation

The labor force participation rate sustained the July rise to 61.7% from 61.6% in May and June, versus a 48-year low of 60.2% in April of 2020 that marked the lowest readings since February of 1972.

Today’s data trimmed prospects for the other August reports, and we may need to further trim our 5.6% Q3 GDP growth estimate at 5.6%, following an assumed Q2 growth boost to 6.9% from 6.6%. The mix leaves a likely Q4/Q4 2021 GDP gain of 6.1% or less. Data from yesterday and today have sharply cut GDP growth prospects for the second half of 2021.

Recent data reinforce our view that we won’t see any policy changes or details on the timing of Fed tapering at the September 21-22 FOMC meeting. We still assume that the Fed makes a November or December announcement about tapering that starts in December or January, and extends through the first half of 2022. Some think it’s nearly certain that tapering will start before year-end, but this may become less clear over the coming months if the post-stimulus growth pull-back becomes more significant.

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