We expect a net increase in total employment of 950,000 and a decline to 5.7% in the unemployment rate when the Bureau of Labor Statistics releases its jobs report on Friday.
We expect a net increase in total employment of 950,000 when the July U.S. jobs report is released on Friday.
Our top-line estimate stands in contrast with the consensus forecast of 875,000 for the month, which would make for a six-month average of 542,000 and a three-month average of 567,000.
In particular, we expect a strong increase in education-related hiring of roughly 400,000 in July, following the gain of 286,000 in June. With many schools closed to in-person schooling this past spring, layoffs in June were lower than they usually are.
The primary catalyst behind the optimistic forecast is that we anticipate another month of challenging seasonal adjustments linked to the long echo of the distortion induced by the pandemic into the data one year ago.
With the average difference of approximately 1.349 million jobs between the seasonal and non-seasonal estimate inside private and government hiring over the past five years, there remains considerable risk around the top-line estimate for July and for an upward revision to the June estimate.
We would assume that this is the reason that several forecasts envision a gain of greater than one million for July.
The shocks to employment a year ago were large and in some cases persistent. We expect some noise around the education sector to continue. While other employment sectors have recovered from those initial shocks, it is highly likely that the monthly employment estimate will continue to be affected by seasonal adjustments well into the fall.
Away from the seasonal issues, we think that this report will be driven by sustained strength in service-sector hiring. Service-sector demand inside the second quarter report for gross domestic product implies a month of robust hiring in leisure and hospitality. In June, private service-provider hiring advanced by 662,000, with leisure and hospitality alone adding 343,000 jobs.
When will workers return?
While we expect an improvement in the labor force participation rate and in the employment-to-population ratio in July and beyond, it is too early to expect a mass migration back into the workforce. The key will be if the trickle we expect to begin in August turns in to a deluge in September and October.
We are also watching overtime and aggregate hours worked to ascertain if firms are offering workers more hours and pay to keep up with demand. Spending would tend to suggest strong wage growth and increased disposable income. We expect average hourly earnings on a monthly basis to increase by 0.3% and 3.9% on a year-over-year basis.
Given the supply chain constraints that are affecting the manufacturing and construction sectors, there is considerable risk to our top-line estimate inside hiring in those ecosystems. Price volatility in construction materials has resulted in delayed housing starts, and a chip shortage in the auto sector has curtailed production at assembly plants. Both present downside risk to the sustained generation of high-paying jobs in July.
The other downside risk to our forecast is linked to the rise of the delta variant. It is reasonable to anticipate that the culture wars around masks and the unvaccinated will spill over into hiring as both employers and workers try to remain safe while maintaining growth.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.