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PNC National Economic Outlook
August 2021
Real GDP Now Above Pre-Recession Level; Very Strong July Job Growth, With Big Drop in Unemployment Rate
Real GDP increased 6.6% an annual rate in the second quarter, after growing 6.3% in the first quarter. Real GDP contracted a huge 10% (not annualized) in the first two quarters of 2020 as the pandemic came to the U.S., but has since increased for four consecutive quarters, and in the second quarter of 2021 was 0.8% above its 2019 Q4 level. Thus total output of goods and services in the U.S. economy is now slightly higher than it was before the pandemic.
Given that the Viral Recession was the largest downturn in the U.S. economy since the Great Depression, as measured by the decline in real GDP, the rebound has been extremely fast. Consumer spending on goods and services added 7.8 percentage points to annualized growth in the second quarter, with fixed business investment also a positive. Residential investment, trade, private inventories, and government spending were all drags on second quarter growth.
The U.S. economy added 943,000 jobs in July, according to a survey of employers from the Bureau of Labor Statistics. This was the best month for job growth since August 2020. Job growth in June was revised sharply higher to 938,000 from 850,000, while May job growth was revised higher to 614,000 from 583,000, for a total upward revision of 119,000.
The three-month moving average of job growth through July was 832,000, up from 607,000 in June and just 64,000 in January 2021, when there was a resurgence in the pandemic. At the current pace of job growth the U.S. economy would be back to its pre-pandemic level of employment in February 2022. The private sector added 703,000 jobs in July, while government employment was up by 240,000; almost all of those gains came from local government education as schools prepared to reopen fully.
The unemployment rate fell by 0.5 percentage point in July to 5.4%, the lowest rate since it was 3.5% in February 2020, before the pandemic. Employment in a survey of households (different from the survey of employers) rose by 1.043 million in July, the biggest one-month gain since October 2020. The labor force increased by 261,000 in July, with the labor force participation rate up by 0.1 percentage point to 61.7%.
The labor force participation rate was above 63% before the pandemic. There are about 3 million fewer people in the U.S. labor force now than there were before the pandemic; labor force growth will need to pick up if the U.S. is to return to its pre-pandemic level of employment.
