Economic Update: Payroll & Job Report

There were several important reports on the U.S. economy released last week. Most notable is the monthly job report from the Bureau of Labor Statistics, which revealed that 943K payrolls were added to the economy in July.

That was the 14th month of job growth since the lockdowns started to be lifted, and in total roughly 75 percent of the 22 million payrolls lost last year have already been recouped. As for joblessness, the national measures of unemployment (U-3) and underemployment (U-6) in America both continued to decline in July, and prime-age labor force participation rose to a recovery high.

A separate report from ADP with more granular data showed that employers of all sizes continued to add payrolls in July. Smaller firms remain the closest to their pre-pandemic level of employment but even companies with only 1-50 workers are still 1.7 percent below the February 2020 peak. The monthly growth rate in payrolls has also slowed across the board in recent months. This is in part due to the reopening pace of hiring being unsustainable but also a side effect of stronger household balance sheets and a healthy job market that have together provided Americans with more confidence to seek potentially better employment opportunities. This has put significant upward pressure on wages but conditions should gradually normalize going forward as lingering pandemic-related distortions are further worked out of the system.

Outside of the labor market there was also a lot of information on general business activity in America released last week. IHS Markit’s purchasing managers index (PMI) for the U.S. manufacturing sector, for instance, climbed to a record high in July, thanks in part to “stronger client demand and efforts to clear backlogs of work” alongside the continued challenge from “supplier delays driven by transportation issues and severe raw material shortages.” These conditions have resulted in the sharpest rise in input costs on record, according to IHS, but firms also reported being able to continue to raise their selling prices in July with little or no pushback from clients. In fact, IHS even went as far as to describe the current environment as “the strongest sellers’ market that we’ve seen since the survey began in 2007.”

Such conditions were largely confirmed in a separate report from ISM released last week, with common complaints from surveyed managers being “near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices, difficulties in transporting products, worker absenteeism, short-term shutdowns due to parts shortages, and difficulties in filling open positions.” All of this will likely keep incoming measures of wholesale and household inflation elevated in the near-term, but the good news is that for now the bulk of the supply constraints still appear transitory in nature. Exactly how long it takes for such imbalances to be worked out remains unclear but there are already signs that bottlenecks are easing, and additional help will come once household spending normalizes back to more services-focused consumption.

What To Watch This Week:

Monday

  • JOLTS 10:00 AM ET
  • Raphael Bostic Speaks 10:10 AM ET
  • Thomas Barkin Speaks 11:30 AM ET

Tuesday

  • NFIB Small Business Optimism Index 6:00 AM ET
  • Productivity and Costs 8:30 AM ET
  • 3-Yr Note Auction 1:00 PM ET
  • Charles Evans Speaks 2:30 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • CPI 8:30 AM ET
  • Atlanta Fed Business Inflation Expectations 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Raphael Bostic Speaks 10:30 AM ET
  • Esther George Speaks 12:00 PM ET
  • 10-Yr Note Auction 1:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • PPI-Final Demand 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 20-Yr Bond Announcement 11:00 AM ET
  • 30-Yr TIPS Announcement 11:00 AM ET
  • 30-Yr Bond Auction 1:00 PM ET

Friday

  • Import and Export Prices 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET

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