Federal Reserve Maintains Status Quo; Jobs Report

The Federal Reserve wants to see “substantial progress” in the economy before it makes any move towards removing accommodation. They haven't specifically defined what that is, but they'll know it when they see it.

But if Fed Chairman Jerome Powell has used his press conferences for anything, it's to hammer home the point that he's still very concerned about the labor market, one-half of the Fed's dual mandate. “I'd say we have some ground to cover on the labor market side,” Powell said after July's decision dropped. “I think we're some ways away from having had substantial further progress toward the maximum employment goal.”

Jobs Report

U.S. nonfarm payrolls added 943,000 jobs in July after a gain of 938,000 in June. The July gain is the seventh in a row and 14th in the last 15 months, bringing the seven-month gain to 4.318 million and the 15-month post-plunge recovery to 16.660 million. This is still well below the 22.362 million combined loss from March and April of 2020, leaving nonfarm payrolls 5.702 million below the February 2020 peak. If payrolls continue to grow at the average over the last seven months (616,857), it may take another nine months to fully recoup all of the job losses.

However, the headline gain was boosted by a large jump of 230,000 in state payrolls. Private payrolls posted a less impressive though still strong 703,000 jobs gain in July after a 769,000 gain in June. The July rise in private payrolls is also the seventh in a row and 14th in the last 15 months. The July addition brings the seven-month gain to 3.721 million and the 15-month recovery to 16.433 million versus a combined loss of 21.353 million in March and April of 2020, leaving private payrolls 4.92 million below the February 2020 peak. If private payrolls continue to grow at the average over the last seven months (531,571), it would also take about nine months to fully recoup all of the job losses.

The breadth of gains was positive again in July. Within the 703,000 gain in private payrolls, private services added 659,000 while goods-producing industries added 44,000. For private service-producing industries, the gains were again led by a surge in leisure and hospitality, adding 380,000, accounting for more than half of the total gain in private payrolls, an 87,000 gain in education and health care services, a 60,000 rise in business and professional services, and 50,000 new jobs in transportation and warehousing. Retail continued to be somewhat volatile, losing 6,000 jobs in July, the second decline in the last four months.

Within the 44,000 gain in goods-producing industries, construction was up 11,000, durable-goods manufacturing increased by 20,000, nondurable-goods manufacturing added 7,000, and mining and logging industries increased by 6,000.

Bottom Line: After 15 months of recovery, all the major private industry groups still have fewer employees than before the government lockdowns. Three industries – Leisure and hospitality (down 1.737 million jobs), education and health services (down 953,000), and professional and business services (off 556,000) – are down more than half a million jobs each.

Other measures of economic activity generally suggest the economic recovery from the government lockdowns in 2020 is continuing as the restrictions on consumers and businesses are lifted. However, the damage done by the lockdowns was severe. The inability of supply to recover as quickly as demand is resulting in shortages in some areas of the economy and putting significant upward pressure on prices. Furthermore, the rising number of new Covid cases from the Delta variant is a growing risk to the recovery. The overall outlook is tilted to the upside, but challenges remain, and risks are growing.