The news from the previous two disappointing months also got better, but first let’s look at the topline:

Total nonfarm payroll employment rose by 943,000 in July, and the unemployment rate declined by 0.5 percentage point to 5.4 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in leisure and hospitality, in local government education, and in professional and business services. …

The unemployment rate declined by 0.5 percentage point to 5.4 percent in July, and the number of unemployed persons fell by 782,000 to 8.7 million. These measures are down considerably from their highs at the end of the February-April 2020 recession. However, they remain well above their levels prior to the coronavirus (COVID-19) pandemic (3.5 percent and 5.7 million, respectively, in February 2020.)

It’s not just the number of unemployed persons that should worry observers. Those workers are still counted as being in the workforce. There are more workers who have left the workforce that get missed in the U-3 unemployment number, and even to some extent in the U-6 rate. At the moment, for instance, we still have more than 9.3 million continuing claims for pandemic-related unemployment relief, a number that far outstrips the four-week average of normal state-based UI claims of 3.188 million. There may be some overlap between the two, but it’s the larger number that indicates that we have a long way to go before getting back to normal.

We get some sense of this in the U-6 figure, which has dropped considerably but still remains at 9.2%. That’s well above the pre-pandemic level of 6.9% in January 2020, somewhat mirroring the trend of the U-3 figure between the two (5.4% now, 3.5% in January 2020). A better way to look at this, however, is to compare the civilian work force numbers between the two dates:

• January 2020 – 164,455,000
• July 2021 – 161,347,000

We still have an overhang of well over three million workers outside the system, for whom these numbers do not account. (Note as well that we have had significant population growth since then, so it’s more significant than the static numbers we see here.) As happened twelve years ago, that overhang will drag wages into stagnation if we don’t generate enough jobs to get them back into the economy, especially after the sugar-highs of stimulus interventions end in September.

There’s good news on that front in this report. Not only did we employ almost a million more workers in July, we actually did better the previous two months as well:

The change in total nonfarm payroll employment for May was revised up by 31,000, from +583,000 to +614,000, and the change for June was revised up by 88,000, from +850,000 to +938,000. With these revisions, employment in May and June combined is 119,000 higher than previously reported.

That has yet to show up in labor force participation rates, which is again a reflection that the U-3 and U-6 numbers are not quite accurate in measuring sidelined workers:

The labor force participation rate was little changed at 61.7 percent in July and has remained within a narrow range of 61.4 percent to 61.7 percent since June 2020. The participation rate is 1.6 percentage points lower than in February 2020. The employment-population ratio increased by 0.4 percentage point to 58.4 percent in July and is up by 1.0 percentage point since December 2020. However, this measure is 2.7 percentage points below its February 2020 level.

Still, this is a big step in the correct direction, even if inflation remains a risk on the horizon. And as the Wall Street Journal points out, renewed restrictions in workplaces and commerce have not yet factored into employment:

The surveys for the jobs report were conducted in the middle of the month. That was before some local governments reimposed mask mandates and other restrictions, and before many employers announced they would require employees to wear masks, be vaccinated or get regularly tested. Companies have also delayed return-to-office plans, including announcements by Amazon.com Inc. and Wells Fargo & Co.

“The jobs recovery is continuing, but it’s different in character to any we’ve seen before,” said Nela Richardson, economist at human-resources software firm Automatic Data Processing Inc. “I had been looking at September as a point when we could gain momentum—with schools back in session and vaccines widely available. But with the Delta variant, we need to rethink that.”

And what about the backlog of jobs? We might have seen that dissipate over the summer, for various reasons, just as applicants have come back to the market:

A record high 9.2 million jobs were available at the end of May, according to the Labor Department. With the pandemic abating at the start of summer, and enhanced unemployment benefits in about half of the states ending in June and July, many economists expected more workers to fill those jobs. A survey from job-search site Indeed.com found 31.6% of respondents in mid-July were actively looking for paid employment, up from 24.4% in mid-June.

However, recent Indeed data showed job postings, which had been increasing at a slower rate this summer than the spring, declined in late July. The drop primarily reflected fewer available jobs in manufacturing, construction and warehousing and transportation—sectors hit by supply shortages—rather than the Delta variant, said Indeed economist Jed Kolko.

The same shortages created in part by workers staying out of the system (one reason for supply shortages, although not the only reason) have led to a pullback in offered employment. By the time many of those receiving pandemic-UI benefits see that income dry up, there may not be enough jobs for all of them to re-enter the market. When that happens, we will see wage-growth stall at the same time inflation is eroding their buying power and savings, a bad combination.

With that in mind, this might be a last hurrah for big job-growth numbers — when we still need several months in a row of them to get back to the pre-pandemic normal. Enjoy it while it lasts.