Analysis at a Glance
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EMPLOYMENT RECOVERY RESUMES IN JULY AFTER MONTHS OF STAGNATION
In July, the unemployment rate fell by 0.5 percentage points to 5.4 percent, breaking the trend of stagnation in recent months, but remaining well above pre-pandemic levels
Leading up to the July employment situation, the outlook was uncertain. The decline in initial claims for Unemployment Insurance had slowed. In addition, preliminary employment data pointed towards a significant, negative misalignment with estimates. However, the July employment situation report from the Bureau of Labor Statistics surpassed expectations for jobs created and improvements in the unemployment rate.
In July, over 940,000 jobs were added to the economy. Over one million more individuals gained employment, resulting in a 0.5 percentage point reduction in the unemployment rate – the largest improvement of the calendar year. National unemployment levels overcame their recent months-long plateau, with the unemployment rate dropping to 5.4 percent. Over 39 percent of unemployed persons were unemployed long-term (27 weeks or greater). Despite the significant decrease, the labor market is still in recovery as the unemployment rate remains 1.9 percentage points above February levels.
Nevertheless, a significant opportunity to further recover endures as the battle against the fifth wave of the pandemic heats up. In July, 5.2 million workers reported being unable to work because their employer closed or lost business due to the pandemic. Additionally, 1.6 million have been unable to look for work. Aside from pandemic impacts, there were 6.5 million persons who were not currently in the labor force in July (and thus not factored into the unemployment rate) but would like a job. In the coming months, the ability to beat back the pandemic and settle the economic churn will pave the way for a strong labor market recovery.
LOCAL GOVERNMENT EMPLOYMENT RISES IN JULY DRIVEN BY EDUCATION-RELATED HIRING
Employment for local governments experienced an increase of 230,000 jobs in July; over a half-million jobs have yet to be recovered
Local governments also experienced a strong month of improvement, with increases of 230,000 jobs primarily driven by education-related employment. Educational employment, including teachers and support staff, increased by 220,700 as schools across the country prepared to return to in-person education. In addition, local government jobs that are not education-related experienced an increase of 9,000 in July. Overall, local government employment has 578,000 jobs to fill to recover to February 2020 levels, with non-education employment having the furthest to go for recovery (373,000 yet to be recovered).
As local leaders shift focus to developing plans for long-term recovery and resilience, support for some of the most impacted workers remains a priority. As of July, the number of persons considered long-term unemployed — or jobless for 27 weeks or more — decreased by 560,000 but remains 2.3 million higher than February 2020. Similarly, the number of permanent job losers remained 1.6 million higher than in February despite improvements in July. Efforts at the local level for those impacted by the pandemic, including human service delivery, workforce training programs and other initiatives, will help to support workers experiencing the lingering impacts of the Coronavirus Recession. Further improvement in local employment bolsters the ability of county governments in this endeavor.
UNEMPLOYMENT RATES DECLINE ACROSS MAJOR WORKING GROUPS OVER THE MONTH
Improvements in the unemployment rate push major working groups closer to pre-pandemic levels
Nearly every major employment sector experienced a marked improvement in July; leisure and hospitality and professional and business services led the pack with gains of 380,000 and 60,000 jobs, respectively. Smaller job gains occurred in health care, manufacturing, mining, other services, information and financial activities. The unemployment rate also improved for nearly all demographic groups, including adult men and women, now at 5.4 and 5.0 percent, respectively. The July 2021 rates also declined for Black (8.2 percent) and Hispanic (6.6 percent) workers, despite all being higher than that of white workers (4.8 percent). In contrast, the unemployment rates changed little for other major demographic groups – i.e., teenage workers (9.6 percent) and Asian workers (5.3 percent). Since peaking in May 2020, the rate for Black workers has declined 8.4 percentage points compared to Asian workers (a decline of 9.5 percentage points) and white workers (a decline of 7.3 percentage points) over the same period.
TRENDS IN OTHER EMPLOYMENT INDICATORS PAINT A BROADER PICTURE OF RECOVERY
Multiple economic indicators experience positive change in July 2021
Nationally, the labor force participation rate experienced a 0.1 percentage point increase and remained well below pre-pandemic levels. Lower levels of labor force participation indicate less confidence in the ability to find a job. This sentiment is also reflected in the number of discouraged workers who believe that no jobs are available for them in the labor market. Despite a decline of 110,000 over the month, there are currently 507,000 discouraged workers in July. This subset factors into the measure of marginally attached individuals – persons available to work and who looked for a job in the past 12 months, but not in the past four weeks – which was at 1.9 million in July.
Furthermore, toplines from the employment situation report show that the number of persons employed part-time for economic reasons remained essentially unchanged. The figure was at 4.5 million individuals in July, but only 100,000 more than February 2020 levels. These individuals would prefer full-time employment but have experienced reduced hours or could not find full-time work.
Finally, signs of recovery are present in the number of persons on temporary layoff, which fell by over a half million (572,000) in July and nearly returned to pre-pandemic levels. However, those jobless for less than five weeks increased by 276,000 as the economic churn persists. Thus, many indicators in July’s employment situation report created room for optimism for the coming months. Still, economic expectations remain measured with the resurgence of the pandemic.
RISING CONCERNS FAIL TO WEIGH ON THE ECONOMIC OUTLOOK
In recent weeks, concerns about the economic outlook have been on the rise. There is concern that the current bout of inflation is not transitory and that the resurgence of the pandemic – the Delta variant in particular – will hamper recovery efforts. These concerns are amplified by weaker-than-expected economic data and low 10-year treasury yields. Though the concerns are valid and should be observed, economic conditions indicate it is unlikely they will materialize in a significant way.
For instance, as Moody’s Analytics notes, the Delta variant of the coronavirus is more likely to encourage current monetary policy and delay talks of tapering. As such, the Federal Reserve will continue to foster conditions that encourage investment and work toward maximum employment. This approach will likely result in downward pressure on inflation as the slack in the labor market is brought under control. Current inflation concerns are driven mainly by a supply crunch; as more jobs return to the economy, supply chain pathways will be able to support increased volume and efficiency, thus easing the supply crunches.
The increase in the money supply drives other inflationary concerns. While significant increases in deficit-financed spending at the federal level have occurred, much of the funding is directed towards areas of the economy that drive inflation. As economist Mark Zandi notes, spending on affordable housing, human services and infrastructure produces downward pressure on inflation. This is particularly relevant to the investments county governments are planning with the newly received $65.1 billion in American Rescue Plan Act funding. Of the plans NACo has collected so far, nearly 1 in 4 pertain to housing initiatives such as affordable housing or support for low-income renters and homeowners. Roughly 23 percent of plans invest in human services to support residents. In addition, 1 in 5 plans focuses on employment initiatives such as job training and workforce development. Finally, almost 40 percent of plans direct investments towards down-payments for rebuilding infrastructure. Not only do these investments ease inflation, but they also support local communities in sustained resilience.
The July employment situation revealed a resumption in recovery after a few months of stagnation. Though many sectors – including local government – have a long way to go until full recovery, the outlook is optimistic. Concerns of inflation and a resurgence of the pandemic are cause for careful examination, but thoughtful analysis of these concerns must take a holistic approach. As recovery progresses, counties will continue to lead efforts to support residents and build a framework for sustained resilience in local communities.
