The US labour market added 943,000 jobs in July and the unemployment rate dropped to 5.4 per cent, in a sign that some of the worker shortages that have hampered the economic recovery have begun to ease.
Non-farm payrolls data released by the Bureau of Labor Statistics on Friday came in well above economists’ expectations for 870,000 new positions, and surpassed the upwardly revised 938,000 jobs created in June.
The figures are being closely watched by policymakers, who are engaged in a fierce debate about how much support the world’s largest economy needs as it emerges from the Covid-19 shock.
Economic growth has rebounded sharply, bringing US output back above its pre-pandemic level for the first time. Consumer prices nationwide have also surged, but the labour market has been slower to heal. Childcare issues, concerns about catching Covid-19 and enhanced unemployment benefits have been cited by policymakers as factors that have deterred Americans from filling a record number of job openings.
The labour force participation rate, which tracks the number of Americans either employed or looking for a job, has remained little changed as a result, despite efforts by employers to attract workers. Some companies have raised wages, while others have offered other incentives.
In July, it remained at 61.7 per cent, in line with the previous month. Average hourly earnings ticked up 0.4 per cent per cent from June, for a year-over-year increase of 4 per cent.
The strong jobs report may compel the Federal Reserve to more seriously consider the scaling back of its $120bn-a-month bond-buying programme — a pace it said it would maintain until it achieves “substantial further progress” on its dual goals of maximum employment and core inflation that averages 2 per cent.
In a letter on Thursday, Joe Manchin, a Democratic senator from West Virginia, urged Fed chair Jay Powell to “immediately reassess our nation’s stance [on] monetary policy and begin to taper your emergency stimulus response”, warning of an overheating economy and high inflation without an adjustment.
But many Fed officials have made the case that more progress still needs to be seen on the labour market front.
Fed governor Christopher Waller said this week that job gains of 800,000 to 1m in July and August could set the stage for an announcement in September, while others including Richard Clarida, vice-chair, and San Francisco Fed president Mary Daly have recently floated the idea of an end-of-year move if the economy improves as expected.
Powell has not yet offered as specific a timeline, but he expressed confidence in the outlook at a press conference following the latest monetary policy meeting last week.
“We’re clearly on a path to a very strong labour market with high participation, low unemployment, high employment, [and] wages moving up across the spectrum”, he said.