Minnesota's jobless rate tumbled lower in July, but the decline was slower than in June. The state has recovered about 40% of the jobs it lost in March and April, during the early weeks of the coronavirus outbreak in the U.S. (Evan Ramstad — AP/The Minnesota Star Tribune)

Minnesota has recovered roughly a third of the jobs it has shed since the beginning of the pandemic — a moderate bounceback that slowed in July as the economy continues to struggle.

The state added 32,500 jobs in July, a 1.2% increase, after a bigger rebound the month before, according to data released Thursday by the Minnesota Department of Employment and Economic Development (DEED).

In June, Minnesota saw a return of 74,700 jobs as businesses such as restaurants, gyms and hair salons were able to reopen for indoor service after being shut down for nearly three months. That's a revision from 84,700 first reported last month.

The state also added 26,200 jobs in May after losing 387,800 jobs in March and April.

"We're moving in the right direction, but growth is slowing, a sign that this recovery will likely take some time," DEED Commissioner Steve Grove said in a statement.

The state's unemployment rate fell to 7.7% in July, down from 8.6% in June and from a record high of 9.9% in May.

But state officials cautioned that the unemployed may have been undercounted because of a lower response rate in July and potential misclassification problems. Still, they said the downward trend from June appeared accurate.

Tyler Schipper, an economics professor at the University of St. Thomas, noted that the state's unemployment rate is now at the same level it was during the Great Recession.

"We're looking at a slower, prolonged recovery until the underlying health crisis is addressed," he said.

People of color have lost their jobs at greater rates during the pandemic in part because they often work in hard-hit service jobs. In July, the Black unemployment rate in Minnesota was 15.3%, based on a six-month moving average, according to DEED. It was 8.6% for Latinos in the state, and 6.3% for white Minnesotans.

Minnesota, which typically has a lower jobless rate than the national average, continues to fare better than most other states. The U.S. unemployment rate in July came in at 10.2%, down from 11.1% in June.

In addition to slowing job growth, there are some signs that layoffs are picking up steam. New jobless claims in the U.S. rose again to above 1 million last week, after declining below that threshold the previous two weeks. Minnesota also saw its number of new claims rise to 11,958 last week, up from 9,087 the week before.

Six months into the pandemic, about 350,000 Minnesotans continue to collect unemployment benefits, down from a peak of 559,000 in mid-May.

Oriane Casale, interim director of DEED's labor market information office, said the jobs data show that employers in Minnesota seem to be hiring more temporary workers, which is a typical trend in a recession.

"It shows there's a lot of caution by employers," she said.

She added that officials had hoped to see a more robust bounceback in leisure and hospitality last month. That sector, which includes restaurants and hotels and had the biggest job losses during the pandemic, saw the biggest gains in July with the addition of 17,200 jobs.

However, that industry is still down 29% in employment compared to a year ago.

"Yes, businesses might be open, but if people are still nervous about going out themselves, then we're not going to feel the recovery until there's more security in a vaccine or some level of herd immunity," said Monica Haynes, director of the Bureau of Business and Economic Research at the University of Minnesota-Duluth.

She added that most forecasts don't call for a full recovery in employment until 2022.

Other areas that had the largest gains last month included government, which added 6,200 jobs, followed by education and health services with 4,400 jobs.

But a couple of sectors lost jobs in July, such as professional and business services, as well as information, which both lost 900 jobs. Construction also had a drop of 400 jobs.

The Duluth metro area — St. Louis, Carlton and Douglas (Wis.) counties — saw the state's largest decline in employment year over year. In July there were about 12,600 fewer people working in that region compared to the same time last year, a 9.3% decline.

Pandemic-induced layoffs across a broad range of industries — including hospitals, an aircraft-maintenance company and a paper mill, plus a delayed start to this year's tourism season — have kept unemployment rates in the region among the highest in the state.

Staff writer Brooks Johnson contributed to this report.

Kavita Kumar • 612-673-4113