The US economy regained 1.8 million jobs in July, a solid but unremarkable result that comes as President Donald Trump prepares for a difficult re-election bid, but economists warn challenges to the pandemic recovery are growing.

With millions still on unemployment rolls, Trump's economic team on Friday failed to reach a deal with Democratic leaders in Congress on a new emergency spending bill to renew aid that has supported wages and consumer spending in the past three months.

Treasury Secretary Steven Mnuchin said Trump will go ahead with presidential action over the weekend, including on expanded unemployment benefits, student loan repayment deferrals and evictions.

The July report showing a drop in the US unemployment rate comes as Congress remains deadlocked on additional relief for laid-off Americans
The July report showing a drop in the US unemployment rate comes as Congress remains deadlocked on additional relief for laid-off Americans AFP / Angela Weiss

"The President would like us to make a deal. But unfortunately, we did not make any progress today," Mnuchin said after yet another meeting with Democratic House Speaker Nancy Pelosi and Senator Chuck Schumer.

Pelosi said Democrats had agreed to lower the package size to $2 trillion from $3 trillion, but the White House balked and continues to resist aid to state and local governments that economists say will be critical to avoiding a new round of layoffs.

While the sides are open to further talks, Pelosi was standing firm.

"I've told them, come back when you when you are ready to give us a higher number," she told reporters after the hour-long meeting.

US monthly unemployment rate since June 2019
US monthly unemployment rate since June 2019 AFP / Gillian HANDYSIDE

As COVID-19 cases spiked in several states in recent weeks, forcing some businesses to shut their doors again, even as a growing number have closed permanently, economists warn of rising concerns that the labor market could take a turn for the worse, especially without federal aid.

Restaurants and bars accounted for a third of the US private job gains in July
Restaurants and bars accounted for a third of the US private job gains in July AFP / Olivier DOULIERY

Another key source of contention is the $600 in additional weekly federal payments to the unemployed, which expired at the end of July, which Republicans want to slash.

"In the absence of additional fiscal aid, the broad economy risks losing momentum as it shifts into the second phase of its rehabilitation," said Lydia Boussour of Oxford Economics.

There are just two more reports before the November elections, leaving little time for Trump to show the kind of improvement that will boost his bid for a second term in the White House.

Trump lashed out at the Democratic leaders on Twitter:

House Speaker Nancy Pelosi and US Senate Minority Leader Chuck Schumer, failed to reach a deal with the White House: 'I've told them, come back when you when you are ready to give us a higher number'
House Speaker Nancy Pelosi and US Senate Minority Leader Chuck Schumer, failed to reach a deal with the White House: 'I've told them, come back when you when you are ready to give us a higher number' AFP / Mandel NGAN

"Pelosi and Schumer only interested in Bailout Money for poorly run Democrat cities and states. Nothing to do with China Virus! Want one trillion dollars. No interest. We are going a different way!"

The unemployment rate fell to 10.2 percent last month from 11.1 percent in June, according to the government data, still slightly worse than the nadir of the global financial crisis in October 2009.

However, the Labor Department said some workers continue to be misclassified in the survey, and the jobless rate actually would have been a full point higher than reported.

The July employment gain marked a sharp slowdown from the increases of 4.8 million in June and 2.7 million in May, and means less than half the 22 million payroll jobs lost during the pandemic have been regained.

"This is far from normal, as another 13 million jobs are needed just to get us back to pre-pandemic employment levels," said Lawrence Yun, chief economist of the National Association of Realtors.

Trump's Democratic challenger Joe Biden seized on the high joblessness to attack the president.

"While I am grateful for the people who got their jobs back, my heart goes out to the more than 16 million Americans still out of work. The truth is it didn't have to be this bad, but Donald Trump failed to act," Biden tweeted.

A third of private jobs gains were due to bars and restaurants reopening, according to the report.

Government and healthcare also saw strong hiring, but public jobs like teachers may have been inflated by the fact many were laid off earlier than usual because of the school closures in March. And with many schools hesitant to reopen, those jobs could greatly decrease in August.

The number of people on temporary layoff in July decreased by 1.3 million, but there were nearly three million workers who lost their jobs permanently, according to the latest data.

Meanwhile, 8.4 million people were working part-time not by choice but out of necessity, a group known as involuntary part-time workers.