MNI REALITY CHECK: US Payrolls Up in July; Outlook Uncertain

U.S. payrolls should rise again in July despite surging Covid-19 cases in some parts of the country causing many businesses to reshutter, though the outlook for future employment growth is still clouded by virus-led economic uncertainty, recruiters and industry leaders told MNI.

The 1.5 million gain in the Bloomberg forecast would equate to less than a third of June's surprise 4.8 million increase, though still far above pre-crisis levels. President Donald Trump said the U.S. would see another "big number" in July during a television interview with Fox News Wednesday morning.

Although most industry leaders saw a modest improvement in employment through much of July, the underlying messages were mixed.

"What we've seen on Main Street is July was a really good month" for hiring, Tom Gimbel, CEO of LaSalle Network in Chicago, told MNI in an interview, adding that his own business increased to around "90% of pre-Covid levels."

Still, employment gains in July aren't likely sustainable because the outlook for a Covid-19 vaccine is still uncertain, prompting business owners to pull back on hiring in the near-term. The upcoming presidential election is also hampering employment growth, he noted, as parts of the business community prepare for a "non-pro-business" administration should former Vice President Joe Biden take office.

HESITATION

"We're starting to see companies get a little hesitant about hiring," he said.

The unemployment rate likely fell slightly in July by roughly 50 basis points, he said, in line with Bloomberg's forecast for a decline to 10.5%.

Despite a sharp increase in positive Covid-19 cases in Texas, Kay Meyer, franchise owner of Express Employment Professionals in San Antonio, told MNI that her recruiting business neared pre-crisis levels in July, and more staff were brought on to keep up with demand.

"We're not at where we should be at this point in the year, but we've recovered back to March levels for our business," she said.

Meyer said job applications came flooding into her office in July, likely "directly attributable" to the pending expiration of a weekly USD600 additive to regular state benefits that was authorized under the CARES Act.

Hourly wage growth likely retreated slightly in July as more lower wage workers, who have been disproportionately affected by the pandemic, returned to their jobs following further relaxation of state lockdowns and business restrictions, Frank Fiorille, VP of Risk, Compliance and Data Analytics at Paychex told MNI.

"You're seeing more people get hired back in the service industry, the first quintile wage earners, and that's driving the number down a bit," he said, citing monthly Paychex data from roughly 300,000 small businesses nationwide.

NO SERVICES GROWTH

The services sector still has a long road to recovery, and social distancing measures still in place mean businesses like restaurants can only operate between 50%-60% of their full capacity and aren't able to hire back all of their pre-pandemic staff -- even though they have technically reopened, Anthony Nieves, chair of the Institute for Supply Management's services sector business survey committee, told MNI

Service-sector employment is "still not growing," he said in an interview, and businesses aren't "pulling back the same levels of the labor force they were before."

"Until we get past these restrictions, we're not going to see employment get anywhere near pre-Covid levels," he added.

Manufacturing payrolls, which rose steadily in May and June, were likely positive in July, but coronavirus-triggered uncertainty should put downward pressure on manufacturing job gains in the coming months, Chad Moutray, chief economist at the National Association of Manufacturers said.

"Until we get to the point where we have a vaccine or at least there's greater certainty in the overall economy, you're going to see hesitance when it comes to both hiring and capital spending," he said in an interview. "That doesn't mean you're not going to see any increases, that just means it'll probably be more of a drag than it was otherwise."