August 6, 2021

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth powered ahead and the unemployment rate fell in July amid demand for workers in the labor-intensive services sector, quashing fears of a hiring slowdown and suggesting the economy began the second half of the year with strong momentum.

The Labor Department’s closely watched employment report on Friday also showed strong wage gains, as employers competed for scarce workers, and a drop in the unemployment rate to a 16-month low. The report came on the heels of news last week that the economy fully recovered in the second quarter the sharp loss in output suffered during the very brief pandemic recession.

Nonfarm payrolls increased by 943,000 jobs last month after rising by 938,000 in June. Economists polled by Reuters had forecast payrolls would increase by 870,000 jobs. Estimates ranged from as low as 350,000 to as high as 1.6 million. Employment is now 5.7 million jobs below its peak in February 2020.

Job gains were partially flattered by shifts in seasonal employment at schools caused by the COVID-19 pandemic.

“Labor market conditions appear to be healthy at the start of the third quarter as labor-intensive service businesses continue to hire given strong pent-up demand,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

Prior to the pandemic, education employment normally declined by about 1 million jobs in July as schools closed, but this year many students are in summer school catching up after disruptions caused by the pandemic. That likely threw off the model or seasonal factors that the government uses to strip out seasonal fluctuations from the data, boosting payrolls.

Government payrolls increased by a whopping 240,000 jobs last month, with employment in local government education rose by 221,000. The Labor Department’s Bureau of Labor Statistics, which compiles the employment report, said “pandemic-related staffing fluctuations in education have distorted the normal seasonal buildup and layoff patterns, likely contributing to the job gains in July.”

Employment in the leisure and hospitality sector increased by 380,000 jobs, with payrolls at restaurants and bars advancing by 253,000. Hiring was also strong in the professional and business services, transportation and warehousing, as well as healthcare industries. Manufacturing payrolls increased by 27,000 jobs, while construction employment rebounded by 11,000 jobs.

The unemployment rate fell to 5.4%, the lowest level since March 2020, from 5.9% in June. The decline came even as 261,000 people entered the labor force, lifting the participation rate to 61.7% from 61.6 in June. The jobless rate, however, continued to be understated by people misclassifying themselves as being “employed but absent from work.” Without this misclassification, the unemployment rate would have been 5.7% in July.

U.S. stocks opened largely higher after the release of the report. The dollar was trading higher against a basket of currencies. U.S. Treasury prices fell.



Economic growth this year is expected to be around 7%, which would be the fastest since 1984. The labor market’s health will weigh heavily on the Federal Reserve’s next monetary policy steps.

“Strong readings over the next couple of months seem likely to give the green light for a pre-announcement of tapering at the Fed’s September meeting,” said James McCann, deputy chief economist at Aberdeen Standard Investments in Boston.

But surging COVID-19 infections, driven by the Delta variant of the coronavirus, pose a risk. While major disruptions to economic activity are not expected, with nearly half of the population fully vaccinated, spiraling cases could keep workers at home and hamper hiring.

A shortage of workers has left employers unable to fill a record 9.2 million job openings. With workers scarce, employers continued to raise wages. Average hourly earnings rose 0.4% last month, led by low-wage industries, after a similar gain in June. That raised the year-on-year increase in wages to 4.0% from 3.7% in June.

(GRAPHIC: Jobs by industry Jobs by industry –

Lack of affordable child care and fears of contracting the coronavirus have been blamed for keeping workers, mostly women, at home. There have also been pandemic-related retirements as well as career changes.

Republicans and business groups have blamed enhanced unemployment benefits, including a $300 weekly payment from the federal government, for the labor crunch. Though more than 20 states led by Republican governors have ended these federal benefits before their Sept. 6 expiration, there has been little evidence that the terminations boosted hiring.

The worker shortage is expected to ease in the fall when schools reopen for in-person learning, but some economists are less optimistic, arguing that the economy was creating many low skilled jobs and there were not enough people to take them.

“One of the biggest problems we have right now is roughly two-thirds of our job openings are in the kind of jobs that do not require any type of a college degree,” said Ron Hetrick, senior labor economist with Emsi Burning Glass in Moscow, Idaho. “We have about 6 million job openings that are not requiring a college degree, but we only have 3.4 million who are unemployed that don’t have a college degree.”

(Reporting by Lucia Mutikani; Editing by Dan Burns and Paul Simao)