US added 1.8m jobs in July as states grapple with Covid-19 resurgence

The US economy added 1.8m jobs in July after a record gain in June, as signals mounted that a resurgence of coronavirus cases in some states is weighing on the labor market recovery.

Related: Coronavirus US: death toll tops 160,000 as relief package impasse continues – live updates

The unemployment rate fell to 10.2% from 11.1%.

The unemployment rate has now fallen for three months in a row, but it remains above the 10% peak of the Great Recession and is three times the 3.5% rate from February, before the spread of the pandemic in the US. July’s jobs increase was less than the 4.8m jobs added in June and 2.7m added in May.

The largest gains were in leisure and hospitality, which increased by 592,000 as coronavirus restrictions were lifted. Employment in food services and drinking places rose by 502,000. Despite the gains over the last three months, employment in food services and drinking places is down by 2.6m since February.

William Rodgers, former chief economist at the US Department of Labor, said the jobs market would not fully recover until the virus was under control.

“We may have plateaued,” said Rodgers, professor of public policy and chief economist at the Heldrich Center for Workforce Development at Rutgers University. “The spigot was turned on, we got some job growth back, but because we have 35 states with [coronavirus] positivity rates above 10%, the next spurt of growth will come when we get these rates down and keep the rates down in the other states.”

On Thursday, the labor department said another 1.2 million people had filed for unemployment benefits. The figure was the lowest since March, but came amid signs that temporary layoffs are becoming permanent. The total number of people claiming unemployment benefits rose to 31.8 million in the week ending 18 July, up from 30.8 million the week before.

When the virus struck, Congress implemented a $600-a-week supplement to unemployment benefits to help people frozen out of the workplace by the virus. That benefit expires at the end of July, and Washington is deadlocked over a replacement as Republicans argue the extra money has acted as a disincentive for people to return to work.

Karen L, who did not wish to give her last name, was furloughed by American Airlines in April. The resident of Miami has been struggling to get her unemployment checks ever since. Florida and other states have been overwhelmed by the number of claims.

“They owe me 15 weeks,” she said. “I just keep calling but it’s a futile effort. Every day, three or four hours, sending emails. I am losing hope.”

Her partner, who also lost his job, was receiving the extra $600 but is now qualified for just $125 a week. His payments have stopped and the couple have no idea why. “We have maxed out our credit cards,” she said. “I had to tell my landlord we couldn’t pay the rent.”

Rodgers said inaction from Congress was causing “unnecessary strain and stress” and that the money was needed for as long as the pandemic continued. His research shows that the states with higher coronavirus rates have the highest unemployment claims. “I would be more sympathetic to the Republican view if we had stronger job creation,” he said.

Without more aid to states and local government, a new wave of layoffs is likely for federal employees. Those losses would disproportionately affect women and people of color who have already been hit hardest by the recession, said Rodgers. “The public sector is where many women and minorities got their toehold in the middle class. If these jobs aren’t supported, we will see an expansion in gender and racial income inequality.”

Karen, originally from the Dominican Republic, and her boyfriend, originally from Columbia, have discussed leaving the country. “We don’t want to,” she said. “It’s just disgraceful. The system is so broken. This shouldn’t happen in the United States.”