Employers added 943,000 jobs in July, the best pace in nearly a year, and the unemployment rate fell from 5.9% to 5.4%, the lowest level since March 2020, signs of a strong labor market ahead of the Delta variant threat. Jeff Sparshott and Greg Ip here to take you through the Labor Department's July jobs report.

Even more encouraging than the better-than-expected growth in jobs and fall in unemployment in July were signs of the improving underlying health of the labor market. First, the broadest measure of unemployment, which includes people who want to work but aren’t looking, or working part time because they can’t find full time work, is falling much more quickly than the official unemployment rate. It dropped to 9.2% in July from 9.8%, just 2.2 points higher than before the pandemic began. Second, the number of people unemployed 27 weeks or longer fell 560,000 to 3.4 million, down 793,000 from its March peak. Among the unemployed, just 2.9 million had lost their jobs permanently, down 600,000 since its April peak. These trends all militate against “scarring” of the labor force, that is people left unemployed or underemployed for years because of the recession. —Greg Ip

The inability to find workers still seems to be holding back job growth. The labor force participation rate ticked up ever so slightly, to 61.7% from 61.6% but it’s only back to April’s still depressed level. So while enhanced unemployment benefits expired more than a month ago in many states, the effect thus far appears modest. The sector most sensitive to UI’s disincentive effects is leisure and hospitality because its pay is relatively low. Employment there did advance strongly by 380,000, but this came as employers boosted both hours and pay, the latter by a whopping 1.4% for non-management employees (vs. 0.4% for all private employees). At $16.47, the sector’s non-management workers now earn $1.56 more than in February last year. —Greg Ip

The labor force participation rate—the share of Americans 16 and over working or seeking work—edged up to  61.7% in July, matching the highest level of the pandemic. While the improvement is good news, the rate is still down around levels last seen during the 1970s, when far fewer women were in the workforce. Americans have come off the sidelines, but there would still appear to be an available pool of workers—if employers make attractive enough offers. 

Participation among those in their prime working years is back to where it was as recently as 2018.

As mentioned earlier, long-term unemployment is falling. Research shows that the longer someone is unemployed, the harder it is to land a new job.

And the number of permanent job losers is the lowest in a year.

The sector hardest hit by pandemic-related restrictions once again added the most jobs. Employment in leisure and hospitality increased by 380,000, with the bulk of that in bars and restaurants. 

At the current pace, employment would be back to its prepandemic level by next February. But that doesn't account for job growth lost had the pandemic never arrived. 

Did the economy really add jobs last month? The Labor Department seasonally adjusts its data to account for normal swings in employment and better reveal underlying trends. The economy predictably sheds jobs every January as temporary holiday hires are let go, and every July as schools say goodbye to bus drivers, cafeteria workers and other staff. But school was virtual around much of the country during the last academic year, so there were fewer hires than normal to begin with, and fewer layoffs at the end: "Staffing fluctuations in education due to the pandemic have distorted the normal seasonal buildup and layoff patterns, likely contributing to the job gains in July," the Labor Department said. So, not seasonally adjusted, nonfarm payrolls fell 133,000—all of July's 943,000 gain came from employment falling by less than the seasonals predicted.

Does that matter? The economy has added more not seasonally adjusted jobs since February 2020 than seasonally adjusted jobs, suggesting the distortions will wash out over time.

"There is still a big gap in the labor market, but even with some slowing from this pace of job growth, we will be back to pre-Covid health by the end of 2022—a recovery *five times* as fast as the recovery following the Great Recession." —Heidi Shierholz, Economic Policy Institute

"The increase in labor force participation, particularly among younger workers, is encouraging and suggests that businesses may start to see labor shortages ease in the coming months." —Julia Pollak, ZipRecruiter

“Today's jobs report shows the recovery continued to chug along undeterred, despite Delta storm clouds on the horizon." —Daniel Zhao, Glassdoor

"Despite the gain, the labor market remains nearly 6 million jobs short of its pre-pandemic peak, which illustrates the progress that has been made, but the significant runway that still exists for job creation to continue." —Jim Baird, Plante Moran Financial Advisors

"The stronger 943,000 rise in non-farm payrolls in July and upward revision to June’s gain indicates that employment growth has shifted into a higher gear and that the drag on hiring from labor shortages is easing." —Andrew Hunter, Capital Economics

"With this report, it feels like the labor market recovery has really found its footing. Job growth continues to accelerate and more workers are finding jobs or starting to pick up their job search." —Nick Bunker, Indeed

"The highly contagious delta variant casts a shadow on the labor market recovery in the coming months, threatening to slow the return of workers still on the sideline due to childcare issues or health concerns." —Kathy Bostjancic, Oxford Economics

“The labor market is tightening sharply as workers are returning to restaurants and schools.” —Joel Naroff, Naroff Economics

Real Time Economics comes to you from WSJ economics reporters and editors around the world. Today's issue was curated and edited by Jeff Sparshott (@jeffsparshott) in Manila and Greg Ip (@greg_ip) in Washington, D.C.

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