US economy added 943,000 jobs in July

A sign advertising job openings is seen outside of a Starbucks in Manhattan, New York City. Picture: Reuters

US job growth rose solidly in July amid demand for workers in the labour-intensive services industry, suggesting the economy maintained its strong momentum at the start of the second half.

Nonfarm payrolls increased by 943,000 jobs last month after rising 938,000 in June, the Labor Department said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls increasing by 870,000 jobs.

Job gains were, however, flattered by shifts in seasonal employment at schools caused by the Covid-19 pandemic. Estimates ranged from as low as 350,000 to as high 1.6 million.

The unemployment rate fell to 5.4% from 5.9% in June.

"Labor market conditions appear to be healthy at the start of third quarter as labour-intensive service businesses continue to hire given strong pent-up demand," said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

Prior to the pandemic, education employment normally declined by about 1 million jobs in July as schools closed, but this year many students are in summer school catching up after disruptions caused by the coronavirus. This likely threw off the model or seasonal factors that the government uses to strip out seasonal fluctuations from the data, giving payrolls a boost.

"Combined with the expansion of summer school programs in several large school districts across the country, the seasonal adjustment process provided another large boost to July education payrolls," said Bullard.

The strong employment report followed on the heels of news last week that the economy fully recovered in the second quarter the sharp loss in output suffered during the very brief pandemic recession. Economic growth this year is seen around 7%, which would be the fastest since 1984.

The labour market's health will weigh heavily on the Federal Reserve's next monetary policy steps.

"Strong readings over the next couple of months seem likely to give the green light for a pre-announcement of tapering at the Fed's September meeting," said James McCann, deputy chief economist at Aberdeen Standard Investments in Boston.

But surging Covid-19 infections, driven by the Delta variant of the coronavirus pose a risk. While major disruptions to economic activity are not expected, with nearly half of the population fully vaccinated, spiralling cases could keep workers at home and hamper hiring.

Reuters