The July jobs report, to be released Friday, could be among the most politically consequential of the economic downturn caused by the coronavirus pandemic.
The labor market has swung wildly since the virus nearly halted the economy in mid-March. Consumer fear of infection and government-mandated shutdowns of businesses caused the loss of more than 20 million jobs in April, the largest decline in a single month in Labor Department records back to the late 1930s. Allowing employers to reopen and recall workers subsequently resulted in the best back-to-back months of hiring in May and June, with employers adding a combined 7.5 million jobs.
The July report will show whether the healing continued or sputtered amid rising Covid-19 cases and deaths, as some jurisdictions halted or rolled back reopening plans. The information could influence policy makers’ next steps, businesses’ hiring strategies, consumers’ confidence and voters’ moods.
If job creation in July continued anywhere near the May and June pace, and the unemployment rate extends a steep descent, it would send a bright message about the economy: The labor market is recovering rapidly, the need for further federal financial assistance is limited, and President Trump can tell an economic comeback story as he seeks re-election in November.
If job growth slowed, stalled or reversed in July, the takeaway would be darker, that a short and partial economic rebound is faltering. This could bolster arguments for extended government support and strengthen presumptive Democratic presidential nominee Joe Biden’s pitch for change in the White House.
“The labor market is clearly healing, but far from healthy,” said Carl Tannenbaum, chief economist at Northern Trust. “We went from a complete stop to 20 miles per hour, and that’s resulted in a nice restoration of jobs. Progress from here will be more difficult.”
Economists surveyed by The Wall Street Journal expect Friday’s report to show the labor market is still improving, though at a cooling pace. They project employers added 1.3 million jobs in July, leaving the economy with about 13 million fewer jobs than in February. They expect the report to show the unemployment rate fell to 10.6% in July from June’s 11.1% reading, which was down from a recent high of 14.7% in April.
Several signs indicate the labor market is losing momentum. After declining for months following a late March peak, new applications for unemployment benefits, a proxy for layoffs, have edged higher the past two weeks, according to the Labor Department. New job postings in July were down from early June, according to ZipRecruiter. Companies ranging from Harley-Davidson Inc. to hedge fund Bridgewater Associates to Microsoft Corp. -owned LinkedIn announced job cuts in July.
When Congress passed stimulus measures in March, they were designed to confront a short-term disruption with jobless benefits and loan programs set to expire in midsummer. The disruptions have proved more persistent. While states have allowed many businesses to reopen, a rising number of Covid-19 cases caused many states to impose renewed restrictions and might have cooled some consumer activity.
Federal policy makers are debating how much additional financial assistance to provide. Congress is working on a new stimulus bill but lawmakers remained at odds last week.
Federal Reserve officials, after cutting their benchmark interest rate to near zero and increasing bond buying this spring, didn’t offer any new policy steps following a meeting last week, but reiterated their pledge to maintain aggressive measures to support the economy.
Like policy makers, economists are also split on the strength of the recovery and will look to the July data for clues.
William Spriggs, chief economist at the AFL-CIO federation of labor unions, is skeptical that the pace of recent job gains can be sustained. He said much of the hiring this spring came from restaurants and retailers who recalled workers once they were allowed to resume operations. The country now needs to confront persistently high unemployment and consumers skittish about traveling, dining out and making longer-term investments.
“We’re down at deeper depths than the Great Recession and don’t have a plan on how to confront the virus,” he said, referring to the recession of 2007-09.
Conversely, Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, is among the economists who expect the labor market to continue to heal this year. He projects the unemployment rate will fall below 8% by year-end. His forecast is based on the assumption that governors and mayors won’t reimpose the strict restrictions because they saw the economic consequences of those actions this spring.
“The snapback won’t be instantaneous,” he said. But “as the economy reopens, pent up demand will be released and the labor market will recover.”
Write to Eric Morath at [email protected]
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