By Manuel Gutierrez, Consulting Economist to NKBA
Key Takeaways:
- Labor force participation rate finally rises.
- Unemployment rate drops by a half point to 5.4%, following several months of much smaller drops of 0.1%.
- July hourly wages rise by a 4.7% (annualized), but trail inflation over the same period.
- Construction industry employment grows by a modest 11,000 following three straight months of losses.
July brought welcome news on the employment front, with nearly one million new jobs added. The 943,000 new positions were a shade above the 938,000 added in the previous month.
This made July the best employment growth month since August 2020, when the total rose by 1.58 million. (Figure 1.)
The robust employment gains of the last two months, despite the growing fears related to the Delta variant of COVID-19, are an encouraging sign that many workers are rejoining the labor force. There are currently 10.1 million job openings, as businesses remain plagued by a lack of workers.
In fact, both the Labor Force Participation Rate and the Employment-to-Population Ratio turned upward last month.
The Labor Force Participation Rate, which is the number of employed and unemployed individuals as a percentage of the total working-age population, rose to 61.7% in July. Similarly, the Employment-to-Population ratio climbed to 58.4%.
Figure 2 illustrates, however, that each of these measures are still short of their corresponding pre-pandemic levels.
Despite steady gains made since the Employment-to-Population ratio hit bottom at 51.3% in April 2020, the current figure is still 3.7 percentage points lower than the 61.1% seen in February of that year, just prior to the pandemic.
The red line in Figure 2 shows that this ratio had been improving steadily since the end of the 2007-2008 economic recession until it was upset by the pandemic.
The participation rate rose in July by a modest 0.1%, remaining at exactly the same level of a year ago: 61.7%.
In other positive news, the unemployment rate fell by half a percentage point to 5.4%. This is a change from the pattern of the last several months, when the rate dropped by just one-tenth of a point each month. Potentially, the policy decision made by several states to discontinue an additional $300 in weekly payments to those who are unemployed was a factor, since the $1,200 monthly bonus may have discouraged some from actively looking for employment.
The employment picture brightened in July, as the economy added more than 900,000 jobs for the second consecutive month.
The July employment report brought mixed news on earnings. Hourly pay in the private sector rose by 4.7% over the last 12 months, the fastest pace since February, when wages were 5.2% ahead of the prior year.
When those increases are considered in light of inflation, however, real wages actually fell. The 4.7% average rise in salaries lags the 5.4% increase in prices over the last year.
By sector (Figure 3), wages for Transportation & Warehousingrose by 6.5% in July compared to last year, while the Retailsector saw wages jump by 6.4%. Both were ahead of inflation even though wages in these two sectors are among the lowest of all private sector businesses.
Those employed in Retail have the lowest hourly wages, with an average pay of $18.62. This is 28% below the norm for all sectors.
It should be noted that hourly wage data does not include additional benefits or bonuses offered by many businesses to attract workers.
Construction employment rose by 11,000 jobs in July. This was a modest gain, but a welcome one, following three months of losses.
Figure 4 highlights the last 12 months’ trend in total construction employment, as well as three of its sub-sectors. Note that the data in the charts is not mutually exclusive.
For instance, Specialty Trades is included in the other three areas. Also, workers in the trades are employed in both residential and nonresidential construction.
Charts:
