On The Money: Five takeaways from the July jobs report

Happy Friday and welcome back to On The Money, where we can feel it coming in the air tonight. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.

THE BIG DEAL—Five takeaways from the July jobs report: The Friday release of the July jobs report gave a clearer view into a labor market clouded by mixed signals from real-time data and concerns about rising coronavirus cases across the country. The U.S. recovered another 1.8 million jobs last month—a bit above economists’ expectations, but well below the gains of May and June — and pushed the unemployment rate down to 10.2 percent.

While the U.S. economy is continuing to recover from the shock of pandemic, the report is a bit more complicated than the headline numbers indicate. Here are five key points to make sense of the July jobs report.

The recovery is still going, but slowing: The story of the coronavirus recession is a story of declines of record-breaking size and speed. Between March and April, the U.S. lost roughly 10 years of job gains and followed it up with a 32-percent annualized decline in economic growth in the second quarter.

The U.S. made solid progress recovering part of the more than 20 million jobs lost to the pandemic with gains of 2.7 million in May and 4.8 million in June. But the 1.8 million jobs gained in July marks a notable slowdown in the pace of recovery.

Economists have warned since coronavirus cases began spiking in mid-June that the resurgence would hinder the pace of growth, even if states don’t reimpose business closures. Those warnings bore out in the July jobs report, reinforcing the need to control the virus before the economy can fully recover.

The report gives both sides ammo in stimulus talks: The state of the economy rarely fits into a neat political narrative and the July jobs report is no exception.

Democrats can point to the slowing pace of job growth and the long road to recovery to support their calls for another $3 trillion in stimulus.

“The latest jobs report shows that the economic recovery spurred by the investments Congress has passed is losing steam and more investments are still urgently needed to protect the lives and livelihoods of the American people,” said House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles Schumer (D-N.Y.) in a Friday statement.

But the White House and Republican lawmakers are seizing on the expectations-beating job gain and lack of increase in permanent layoffs to make the case behind a pared down bill focused on reopening the economy.

“The most responsible thing we can do is to take proactive measures to allow people to return to work safely, instead of continuing to lock down the economy,” said Rep. Kevin Brady (R-Texas), ranking member of the House Ways and Means Committee.

The job market is still a long way from recovery: Despite three months of seven-figure job gains, the U.S. economy is still in a deeply damaged state. The July unemployment rate of 10.2 percent is roughly even with the peak of joblessness during the Great Recession of 10 percent in October 2009. And the true level of U.S. unemployment may be higher given how the pandemic has made it harder to define and track who is truly in the labor force.

It took a decade of steady economic recovery— the longest in modern U.S. history — for unemployment to drop to a 50-year low of 3.5 percent in February, so the nation remains a long way from where it was before the pandemic.

“At the current pace, it would take well into 2021 to recoup the 12.9 million jobs lost since February,” wrote Diane Swonk, chief economist at Grant Thornton, in a Friday analysis of the jobs report.

The increase in government jobs is likely misleading: Employment in government — which includes public schools — rose by 301,000 in July.

At first glance, that’s a welcome sign of resilience as state and local governments face severe budget crunches driven by falling tax revenues and staggering unemployment claims. But economists warn that the rise is likely the result of a seasonal adjustment designed to account for the large numbers of teachers and school employees that roll off of payrolls during the summer before coming back to work in the fall.

Elise Gould, senior economist at the left-leaning Economic Policy Institute, noted that public sector employment is still 1 million jobs below its February level after loads of layoffs during the beginning of the pandemic.

“We’ve seen large reductions in state and local public sector employment — a sector which disproportionately employs women and Black workers — over the last few months,” Gould wrote.

“I’d warn data watchers to consider those gains with a grain of salt, and to look at the overall changes from February (pre-COVID-19) to July.”

Aid to state and local governments is one of the biggest obstacles to gathering GOP support behind another stimulus bill, so this rise could factor into the rhetoric around the negotiations.

The report poses hard questions for negotiators: Every monthly jobs report has about two weeks of lag between the time the data was compiled — around the 12th of that month — and the report’s release.

While economic conditions don’t typically change drastically in that time, July was an exception. The $600 weekly boost to jobless benefits and the federal eviction and foreclosure ban enacted in March both lapsed in between the jobs report survey period and release, and much of the money lent through the Paycheck Protection Program had been spent by the end of the month. That means lawmakers are looking at a glimpse of the economy with much more fiscal support than it currently has, posing tough choices about how much more is needed to keep the economy afloat.

Even so, economists are urging  lawmakers not to rest on their laurels as the U.S. faces a difficult road ahead.

“Any notion that the improvement in the top line provides a convenient excuse for policymakers to avoid hard decisions around a fifth round of fiscal aid aimed at the unemployed should be summarily dismissed,” wrote Joe Brusuelas, chief economist at tax and audit firm RSM, in a Friday analysis.

Talks on a new coronavirus relief package were going poorly before the report and collapsed hours after it was released. 

LEADING THE DAY

Trump embraces jobs report signaling slowdown: The White House is trying to capitalize on the latest jobs numbers, arguing they point to a strong economic recovery under President Trump even as millions remain out of work and states grapple with increases in coronavirus infections.

But the data nevertheless point to an economic slowdown, challenging the White House’s bullish predictions for a speedy V-shaped recovery. The figures also come amid collapsed talks between the Trump administration and Democratic leaders on a coronavirus relief package, which economists say is desperately needed to prevent a deeper recession.

“This is not a rocket ship,” said Martha Gimbel, senior manager of economic research at Schmidt Futures. “It’s really unclear if the economy is going to achieve escape velocity before the lack of government spending crashes down or before … we have to shut down again, which is a total possibility.”

The Hill’s Morgan Chalfant and I explain why here.

The White House view: White House economic adviser Larry Kudlow, who did the rounds on cable news Friday morning, declared that the numbers evidenced a “self-sustaining recovery” and predicted that the United States would see unemployment head into the single digits in the fall months.

“The worries that some partial shutdowns or some pausing shutdowns would wreck the jobs numbers did not pan out. I think that shows signs of strength,” Kudlow said on Fox Business.

The economists’ take: Economic analysts say that despite the jobs report, there remains a need for additional fiscal stimulus. Many point to an extension of the expanded unemployment benefits and additional aid to states as necessary steps to shepherd the economy through recovery until there is a vaccine for the coronavirus.

“This jobs number doesn’t change the undeniable need for additional federal support,” said Isaac Boltansky, director of policy research at investment bank Compass Point Research & Trading.

GOOD TO KNOW

• Two major U.S. stock indexes closed with meager gains Friday amid the collapse of bipartisan stimulus talks and a July jobs report that showed a notable slowdown in the recovery from the coronavirus recession.
• Chinese tech company Tencent has seen its stock tumble after President Trump signed a pair of executive orders Thursday night that targeted Chinese apps WeChat and TikTok.
• Canada announced plans Friday to retaliate against the U.S. after President Trump announced Thursday that he is reimposing aluminum tariffs.

ODDS AND ENDS

• Op-Ed: J.W. Verret, a law professor at George Mason University, bemoans an “Innovation in stock trading delayed at the SEC.”
• A coronavirus vaccine will be available to poorer countries for less than $3 a dose under a new partnership between the Gates Foundation and the Serum Institute of India, the world’s largest vaccine maker.

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