US job growth slows sharply as Delta hits recovery

The US economy created just 235,000 jobs in August, a sharp decline from the previous month and a sign that the more contagious Delta coronavirus variant is having an effect on hiring plans.

Non-farm payrolls data released by the Bureau of Labor Statistics on Friday marked a sharp deceleration from the upwardly revised 1.1m jobs created in July, and came in well below economists’ expectations for 733,000 positions in August. The unemployment rate ticked lower to 5.2 per cent, having hovered at 5.4 per cent in July.

“It is all Delta,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “September is going to be similar if not worse, and I’m struggling to imagine we get a turnaround in October . . . I’d be really surprised if we got back to 500,000 prints before November.”

The leisure and hospitality sector saw no job gains in August, having increased by an average of 350,000 positions per month over the previous six months, according to the Bureau of Labor Statistics. In another sign that the Delta variant is having a major impact, restaurants saw job losses of 42,000, while retailers suffered declines of 29,000.

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Construction

Hiring in the construction space also failed to pick up, with “little change” in the employment picture, according to the BLS.

Jobs gains were “notable” in professional and business services, manufacturing, transportation and warehousing, the report showed.

The extremely weak jobs report comes just days before the scheduled expiration of enhanced federal unemployment benefits that were put in place to blunt the economic damage caused by the pandemic.

The additional aid, which included an extra $300 in weekly assistance for unemployed Americans, is set to expire on September 6, removing a critical source of support for an estimated 7.5m workers at a time when Covid-19 cases are rising at an alarming rate in parts of the country.

Republicans have long argued these measures are deterring people from returning to the workforce, prompting 25 predominantly conservative-leaning states to end the enhanced benefits over the summer.

Goldman Sachs economists estimate that July’s jobs growth would have been 400,000 higher had the enhanced benefits expired nationwide, and forecast next week’s termination to add 1.5m in payroll gains by the end of the year.

But other economists say there are a number of other reasons also contributing to a broader labour market shortage, including persistent fears about catching Covid-19, as well as childcare issues. Thus far, the states that have cut benefits have not seen a marked change in employment trends.

Rate

The labour force participation rate, which tracks the number of Americans either employed or looking for a job, did not improve in August, hovering at 61.7 per cent.

Average hourly earnings increased beyond economists’ expectations, at 0.6 per cent from July, for year-over-year gains of 4.3 per cent.

Friday’s data was released on the cusp of a potential policy pivot from the Federal Reserve, which is engaged in an active debate about the amount of stimulus it is injecting into financial markets.

Some officials have called for the US central bank to announce plans at its meeting in September to begin scaling back its $120 billion (€102 billion) asset purchase programme, arguing that the US economy is now on a sustainable growth path, particularly with rising inflation and a tightening labour market.

At the virtual Jackson Hole symposium of central bankers last week, chair Jay Powell endorsed an adjustment by the end of the year but indicated further strides need to be made on the labour market front before tapering stimulus. He also cautioned against pulling back policy support prematurely, which he said would be "harmful" with "substantial slack" still in the jobs market and the pandemic raging.

Strides

Despite recent strides in the labour market, 5.3 million more Americans remain out of work than in February, 2020, before the onset of the global pandemic.

Ahead of the report, Wall Street investors broadly believe the Fed will make the taper announcement at its policy meeting in November, but that timeline may shift given Friday’s indication that the Delta variant is crimping economic activity.

On Wall Street, equity futures slid in response to the new data, with derivatives on the benchmark S&P 500 giving up earlier gains to trade 0.1 per cent lower for the day heading into the official US market open.

US Treasury yields, which move inversely to prices, briefly dipped following the announcement. The benchmark 10-year Treasury yield inched lower before rising 0.04 percentage points higher for the day at 1.32 per cent.

In the eurozone, a recovering labour market saw July unemployment fall 0.2 percentage points to 7.6 per cent from the previous month, its lowest reading since May, 2020, according to official data released this week. – Copyright The Financial Times Limited 2021