The payroll increase reported Friday by the Labor Department was nonetheless well below the 4.8 million jobs created in June, the highest ever recorded. The unemployment rate fell to 10.2%, down from 11.1% in June.
Economists surveyed by Refinitiv expected the report to show that unemployment dropped to 10.5% and the economy added 1.6 million jobs.
“We have seen a very troubling increase in COVID-19 cases in many states that had reopened for business, but we continue to be cautiously optimistic that the overall U.S. economy has turned a corner, and that the solid job gains announced today will be sustained," said Tony Bedikian, managing director of Citizens Bank.
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Estimates before the report varied widely amid escalating fears that a flare-up in COVID-19 cases across the country and a fresh round of business closures would derail the job market's early recovery from the worst economic downturn since the Great Depression.
Over the past three months, the economy has added back less than half -- about 42 percent -- of the 22 million jobs it lost during the pandemic, data show. There are still 10.6 million more out-of-work Americans than in February.
The unemployment level, at its highest in decades, is expected to remain elevated as social distancing guidelines are kept in place while states fight a resurgence in COVID-19 cases.
Last week, the number of Americans applying for unemployment benefits fell to 1.18 million, the lowest level since the pandemic started in mid-March. The figure indicates there's still some driving power behind the job market's turnaround.
Leisure and hospitality once again accounted for the bulk of jobs created last month, with 592,000 new positions added. About 504,800 of those were in food and drinking establishments — one of the industries hit hardest by the pandemic as states ordered restaurants and bars to close and directed Americans to stay at home.
Government jobs grew by 301,000, retail saw a gain of 258,300 and manufacturing payrolls increased by 26,000. Education and health services added 215,000 workers.
The numbers reflect the economy's struggle to recover from the virus-induced crisis, which sent the nation's GDP -- the broadest measure of goods and services produced by a country -- plunging a record-shattering 32.9% annual rate in the April-June quarter.
The report comes as Democratic leaders and White House officials try to negotiate another round of emergency aid for families, businesses and the economy. But talks over the deal are at an impasse, putting at risk possibly trillions of dollars in relief.