Friday, September 3, 2021
It seems to be two steps forward, one step back for the U.S. labor market.
The U.S. Bureau of Labor Statistics released its August employment report this morning, revealing that the domestic economy added a disappointing 235,000 jobs during the month, falling well short of Bloomberg-surveyed economists’ median forecast for a gain of 733,000. This comes on the heels of a strong July during which payrolls climbed by an upwardly revised 1.053 million jobs. The unemployment rate fell to 5.2% in August, in line with expectations, and was paired with an unchanged labor force participation rate, which stayed at 61.7%.
“The Delta variant surge is the unsurprising story behind August’s big payroll miss,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Leisure and hospitality jobs, a proxy for economic reopening, were flat month over month. The good news is that we see promising signs Delta’s effect will wane in coming months and payrolls will resume growing at a fast clip.”
As seen in the LPL Chart of the Day, we remain 5.3 million payrolls shy of February 2020’s peak.
The other key takeaway from this report is wage pressures are building. Average hourly earnings came in hotter than expected, an increasingly common occurrence, posting a 0.6% month-over-month gain versus expectations for 0.3%, and a 4.3% gain year over year versus expectations for 3.9%. Wages have important implications in the inflation debate, as they and rents are considered to be among the “stickier” components of inflation. Today’s report is likely to bolster those in the camp asserting inflation will be less transitory than the Federal Reserve (Fed) thinks, though it should be noted that the lack of employment growth in lower wage in-person sectors likely contributed to the higher wage numbers.
Looking ahead, we continue to believe there is reason to expect a strong jobs rebound in coming months. Schools closed for the summer, potential disincentives from enhanced unemployment benefits, and the troublesome Delta variant have all acted as speed limits on the pace of employment growth recently. August’s report, though, figures to be the last where all of these factors remain in full force. Enhanced unemployment benefits are set to expire on Labor Day (ironically), meaning their effects will only be present for part of the September report’s observation window, and will be fully gone by the October report. Schools and daycare facilities, meanwhile, are beginning to reopen, freeing up parents to rejoin the labor force. And, most importantly, we are seeing promising signs that the worst of the latest flare-up in COVID-19 cases may be behind us.
Zooming out, this job report has the potential to delay the Fed’s tapering timeline. Fed Chair Powell has made it clear that the labor market will serve as his tell regarding when to begin tapering asset purchases. With today’s big payroll miss, it is clear the labor market is under some near term pressure, and while these pressures are likely to dissipate the Fed will probably err on the side of caution to avoid acting prematurely. The next month is sure to be an interesting one for Fed-watchers.
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