US firms cut back dramatically on hiring in July

Companies in the United States drastically cut back on hiring workers last month, in yet another signal that the nation’s jobs market recovery is faltering as COVID-19 infections spike in parts of the country.

The ADP National Employment Report on Wednesday showed private payrolls increased by a mere 167,000 jobs in July after jumping by 4.314 million in June and 3.3 million in May.

That means the economy still has 13 million fewer jobs than it did in February, according to ADP – before lockdowns swept the nation, throwing tens of millions of Americans out of work.  

The ADP report is jointly developed with Moody’s Analytics.

“Today’s data is a cautionary tale that the jobs market is not going to kick into higher gear until there is a vaccine,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi attributed the sharp deceleration in private payrolls to the spike in infections and the expiration of the US government’s Paycheck Protection Program (PPP) that gave businesses loans which can be partly forgiven if used to pay employees. 

The PPP was part of an historic fiscal package worth nearly $3 trillion Congress passed in March.

Congress is currently debating another round of virus relief. A key point of contention involves how to extend the $600 federal weekly top-up to state unemployment benefits which expired late last month, severing a vital financial lifeline to tens of millions of out-of-work Americans.

New cases of COVID-19 have exploded in parts of the US, especially in the densely-populated South and West regions where authorities in hard-hit areas are pausing and even rolling back plans to reopen local economies.

California, Texas and Florida account for a third of the nation’s employment.

ADP’s figures showed hiring collapsed among companies of all sizes and in nearly all industries. A category that mostly includes restaurants, bars and hotels added just 38,000 jobs last month, after gaining more than 3 million in May and June combined.

A more comprehensive read on the nation’s labour market is on due on Friday when the Department of Labor releases its monthly jobs report.

Economists expect the government to report that employers added 1.8 million jobs in July, according to a survey by data provider FactSet. That would typically be considered a huge gain, but in this case, it would be somewhat disappointing after hiring reached 4.8 million in June and 2.7 million in May.

While the ADP report has a poor track record forecasting the private payrolls component of the government’s employment report because of methodology differences, the decline in job growth last month was in line with a recent pick-up in new applications for state unemployment benefits.

The US economy fell into recession in February and suffered an epic 32.9 percent contraction from April through June on an annualised basis – by far the worst on record.