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Regardless of July's jobs report, the labor recovery has 'a ways to go'

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This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Friday, August 6, 2021

July's jobs report can't be big enough

In just a few hours, the Bureau of Labor Statistics will release the July jobs report. 

Wall Street economists expect the report will show non-farm payrolls grew by 858,000 last month, with the unemployment rate expected to fall to 5.7%, according to data from Bloomberg. 

Each month, the jobs report asks a slightly different question about the health of the economy. Currently, top of mind are questions about whether the spread of the Delta variant will hold back labor market growth, and whether the expiration of unemployment benefits in a number of states will create a surge of interest from job seekers. 

But underlying any one month's specific theme is a broader question about Fed policy: is this report more (or less) likely to make the central bank revisit its current policy stance? 

And on this question, for this month, we may already have our answer. 

In his press conference last month, Federal Reserve Chair Jerome Powell outlined why a strong number in Friday's jobs report will not alone be enough to change how the central bank is thinking about this labor market recovery. 

"Demand for labor is very strong, and employment rose 850,000 in June, with the leisure and hospitality sector continuing to post notable gains," Powell said on July 28. "Nonetheless, the labor market has a ways to go." 

Powell added: "The unemployment rate in June was 5.9%, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year. Factors related to the pandemic, such as caregiving needs, ongoing fears of the virus, and unemployment insurance payments, appear to be weighing on employment growth."

After the June jobs report, we highlighted three key takeaways, and among them was the persistent shortfall we've seen in total employment levels relative to February 2020. With the gap between current employment and pre-pandemic employment standing at nearly 7 million, even a gain of 1 million jobs or more in July would leave the labor market in "ways to go" territory. 

Powell was later asked what would constitute "substantial further progress" towards the Fed meetings its goal of maximum employment and price stability. "I'd say we have some ground to cover on the labor market side," Powell said. 

He added that, "I think we're some way away from having had substantial further progress...towards the maximum employment goal. I would want to see some strong job numbers And that's kind of the idea." 

Powell's decision to say "job numbers" and not "a jobs number" is an important distinction.

In about three weeks, Powell will speak at the Jackson Hole Economic Symposium, an event that prior Fed chairs have used to signal some future tweak in policy. Some Fed watchers had expected Powell to more clearly outline when the Fed might begin tapering its current pace of asset purchases. 

But Powell's comments last week outlined a Fed willing to sit tight through an inflationary summer and a labor market recovery that has come back, albeit with some fits and starts. 

"Generally speaking, Americans want to work," Powell said last week. "And they'll find their way into the jobs that they want. It may take some time, though."

And the Powell Fed is willing to wait. 

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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