July Jobs Report: 1.8M Jobs Added, Unemployment Rate Drops to 10.2%

This morning's employment report for July showed a 1.8M increase in total nonfarm payrolls, which was above the Investing.com forecast of 1.6M.

Here is an excerpt from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Total nonfarm payroll employment rose by 1.8 million in July, and the unemployment rate fell to 10.2 percent, the U.S. Bureau of Labor Statistics reported today. These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it. In July, notable job gains occurred in leisure and hospitality, government, retail trade, professional and business services, other services, and health care.

This news release presents statistics from two monthly surveys. The household survey measures labor force status, including unemployment, by demographic characteristics. The establishment survey measures nonfarm employment, hours, and earnings by industry. For more information about the concepts and statistical methodology used in these two surveys, see the Technical Note.

Coronavirus (COVID-19) Impact on July 2020 Establishment and Household Survey Data

Data collection for both surveys was affected by the coronavirus (COVID-19) pandemic. In the establishment survey, approximately one-fifth of the establishments are assigned to four regional data collection centers for collection. Although these centers were closed, interviewers at these centers worked remotely to collect data by telephone. Additionally, BLS encouraged businesses to report electronically. The collection rate for the establishment survey—which had a longer-than-average collection period in July—was 78 percent, higher than the average for the 12 months ending in February 2020. The household survey is generally conducted through in-person and telephone interviews. However, for the safety of both interviewers and respondents, the vast majority of interviews were done by telephone, with in-person interviews conducted on an extremely limited basis in some areas of the country. The household survey response rate was 67 percent, up from the rate of 65 percent in June but much lower than the average rate of 83 percent for the 12 months prior to the pandemic.

In the establishment survey, workers who are paid by their employer for all or any part of the pay period including the 12th of the month are counted as employed, even if they were not actually at their jobs. Workers who are temporarily or permanently absent from their jobs and are not being paid are not counted as employed, even if they are continuing to receive benefits.

In the household survey, individuals are classified as employed, unemployed, or not in the labor force based on their answers to a series of questions about their activities during the survey reference week (July 12th through July 18th). Workers who indicate they were not working during the entire survey reference week and expect to be recalled to their jobs should be classified as unemployed on temporary layoff. As in recent months, a large number of persons were classified as unemployed on temporary layoff in July.

Since March, household survey interviewers have been instructed to classify employed persons absent from work due to temporary, coronavirus-related business closures or cutbacks as unemployed on temporary layoff. BLS and Census Bureau analyses of the underlying data suggest that this group still may include some workers affected by the pandemic who should have been classified as unemployed on temporary layoff.

The share of responses that may have been misclassified was much smaller in June and July than in prior months.

For March through June, BLS published an estimate of what the unemployment rate would have been had misclassified workers been included. Repeating this same approach, the overall July unemployment rate would have been about 1 percentage point higher than reported. However, this represents the upper bound of our estimate of misclassification and probably overstates the size of the misclassification error.

According to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

More information is available at www.bls.gov/covid19/employment-situation-covid19-faq-july2020.htm .

Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000. We've added a 12-month moving average to highlight the long-term trend.

PAYEMS Monthly Change

The unemployment peak for the last cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and the S&P Composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top series in the chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The mirror relationship appears to repeat itself with the previous bear markets. The COVID-19 pandemic, however, has been a different case.

Unemployment and the Market

Now let's take a look at the unemployment rate as a recession indicator or more specifically the cyclical troughs in the UR as a recession indicator. The next chart features a 12-month moving average of the UR with the troughs highlighted. As the inset table shows, the correlation between the MA troughs and recession starts is remarkably close.

Unemployment and Recessions

Here's another chart to illustrate the reality of the unemployment rate - the unemployment rate divided by the labor force participation rate.

The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It is now at 0.9%, unchanged from the previous month.

Unemployed 27+ Weeks