U.S. employers added the most jobs in nearly a year and the unemployment rate declined faster than forecast, showing the labor market is making more robust gains toward a full recovery.
Payrolls climbed by 943,000 last month after an upwardly revised 938,000 increase in June, a Labor Department report showed Friday. The median estimate in a Bloomberg survey of economists called for a 870,000 gain. The unemployment rate dropped by a half percentage point to 5.4%.
The dollar and 10-year Treasury yields advanced while stock futures erased gains as traders bet a strengthening labor market will lead Federal Reserve officials to begin pulling back monetary support, including bond buying.
A resurgence in economic activity has sparked a surge in labor demand — particularly in the leisure and hospitality industry — since the beginning of the year. At the same time, payrolls remain 5.7 million short of pre-pandemic levels and many employers have struggled to fill a record number of vacant positions.
Americans classified as long-term unemployed, or those who have been unemployed for 27 weeks or more, declined by 560,000 in July — the biggest drop on record.
The figures mark a big step toward the Fed’s goal of “substantial” further progress in the labor market recovery. Fed officials including Chair Jerome Powell and Governor Lael Brainard have indicated the labor-market recovery had some way to go before the central bank could begin tapering asset purchases.
Fed Governor Christopher Waller said this week that if the next two monthly employment reports show continued gains, he could back such a move.
Overall job growth in July was bolstered by a 220,700 seasonally adjusted gain in local education payrolls. The government attempts to smooth out the school-related dismissals that occur during the summer months. Because of smaller staffing levels this spring, the adjustment resulted in a larger July gain.
Friday’s figures showed a 703,000 increase in private payrolls, which was led by leisure and hospitality, which jumped by 380,000. Roughly two-thirds of the overall increase in July payrolls was due to job gains in local education and leisure and hospitality.
Other notable payroll gains were in health services, transportation and warehousing, and business services.
The data offer validation for President Joe Biden’s efforts this year to approve almost $2 trillion in pandemic relief and widely distribute vaccines, amid signs that employers were having difficulty finding workers.
Even so, a stronger labor recovery could spur lawmakers to pare back Biden’s long-term proposal for trillions of dollars toward child care, education and other social measures.
The labor force participation rate — a measure of the share of Americans who are employed or looking for work — edged up to 61.7% in July. Companies say they’re having trouble recruiting workers because of ongoing fears of catching the virus, child care responsibilities and generous unemployment benefits, all of which could be holding back the participation rate.
In an effort to encourage unemployed Americans to look for work, roughly half of U.S. governors have ended federal unemployment benefit programs created during the pandemic before their official expiry in September.
Employers including Amazon.com Inc. and McDonald’s Corp., meanwhile, have been increasing wages and offering signing bonuses to lure workers. Average hourly earnings increased by 0.4% in July for a second month, the report showed.
The coronavirus delta variant, which became more widespread at the end of July, could pose a risk to job growth in the coming months. Policy makers have begun introducing measures to curb the spread of the variant and prevent another round of shutdowns.
New York City will require proof of vaccination for workers and customers at indoor restaurants, gyms and entertainment venues, while the Centers for Disease Control and Prevention updated its guidance on indoor masking to include K-12 classrooms and vaccinated people who live in virus hot spots.
