- July 7, 2021
-- All eyes were on last week's jobs report to gauge if the positive economic momentum from the first half of the year can be sustained in the second half. After two consecutive months of payrolls undershooting expectations, job gains surprised to the upside.
The U.S. economy added 850,000 jobs, the most in 10 months.1
However, the unemployment number edged higher to 5.9%, and labor force participation held steady, indicating the Federal Reserve's threshold for "substantial further progress" has not yet been met.
The market interpreted the fresh labor data as "Goldilocks,"
or just right. This was strong enough to instill confidence about the recovery but not so strong it accelerated the Fed's timeline to reduce its accommodation.
Here are our key takeaways:Hiring ramps up as more of the economy reopens
Workers are not coming back in droves
- Job gains of 850,000 were stronger than expected, while payrolls for the previous two months were revised higher by 15,000. About 40% of the gains came from leisure and hospitality, the sector most hurt by the pandemic.1 While hiring in hospitality has outpaced other sectors over the last five months, it has a lot of ground to make up. Employment in the sector is still down 13% from February 2020.1 Considering the broad availability of vaccines, increased consumer savings and pent-up demand for in-person experiences, we view this gap as room for further improvement rather than a threat to the labor market recovery.
- Education – another area hit hard by the pandemic – was the second-largest contributor with a 268,000 employment gain. State and local government hiring added the most jobs in 10 months.
- The uptick in the headline unemployment rate is surprising but not particularly concerning. It resulted from a small increase in the labor force and more people voluntarily leaving their jobs. The underemployment rate – which includes part-time workers who want a full-time job – declined to 9.8% from 10.2% in May and 10.4% in April.
Sources: 1. Bloomberg
- As businesses have ramped up capacity to meet increased demand, worker shortages have impacted hiring, holding back the recovery. The most recent Labor Department report showed that open positions in April soared to a record 9.3 million, enough to absorb the entire shortfall in jobs since the pandemic started.
- Strong and accelerating payroll gains signal that the worst of the labor shortages might be behind us. Higher wages could pull more workers back, yet 3.4 million people are still missing from the labor force. The participation rate held steady last month, remaining well short of pre-pandemic levels.1
- Enhanced unemployment benefits, lack of childcare and health fears may explain why people have hesitated to rejoin the workforce, even as job openings have risen sharply.