The US added just 235,000 jobs last month, falling way short of expectations amid fresh concerns over the pace of the labor market’s recovery due to surging COVID-19 cases driven by the Delta variant, the feds said Friday.
August’s numbers came in far below economists’ expectations of 720,000 jobs added, and comes after the country added an impressive 1.05 million jobs in July, according to the revised figures.
It’s the worst monthly increase in jobs seen since January.
The unemployment rate dropped to 5.2 percent in August, as expected, from 5.4 percent in the month prior, according to Friday’s highly anticipated jobs report from the Bureau of Labor Statistics.
That’s far higher than the 50-year low of 3.5 percent reported in February of last year, before the pandemic gutted the economy.
“Friday’s jobs report showed a significant slowing in hiring, but a surge in wage growth, which is a worrisome combination for the economy. Slow economic growth and rising inflation is the worst case scenario for the economy,” Jay Pestrichelli, CEO of ZEGA Financial, a Florida-based investment firm said.
Average hourly earnings rose 0.6 percent in August from July, the feds said, but were up 4.3 percent compared with a year ago. The report noted that “rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages.”
The report “suggests the recent uptick in Covid-19 cases from the Delta variant may have slowed the labor market’s recovery, although one month’s report doesn’t make a trend and the number is subject to future revisions,” Pestrichelli said.
By sector, leisure and hospitality, which is the part of the economy hit hardest by the pandemic and has been leading the jobs recovery this year with gains of 350,000 per month for the past six months, stalled out in August, the feds said.
Professional and business services led the gains in August with 74,000 new jobs, the feds said. Transportation and warehousing added 53,000 new positions while private education added 40,000.
Notably, manufacturing picked up 37,000 new hires, up from 27,000 in July.
Other major industries, including construction, wholesale trade and health care, also saw little change in the number of jobs, the feds said.
In August, 5.6 million people reported that they had been unable to work because their employer closed or lost business due to the pandemic, the feds said. That figure’s up from 5.2 million in July.
Meanwhile, 5.7 million people were in the labor force in August, but couldn’t find a job – a decrease from the 6.5 million who were looking for jobs in July, suggesting that some people might be staying out of the job market as the Delta variant rages.
“Headline number is obviously disappointing – much lower than expectations – and markets will react. But the interesting question is why the number is so low,” Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, said.
There appears to still be demand for new workers, though people are still hesitant to seek work again, adding that the labor force participation rate was effectively unchanged, he noted.
“The takeaway here is that much of the weakness comes from the rise in medical risks, rather than a general slowdown in the economy which is also consistent with the weak consumer confidence numbers,” McMillan said.
Still, about 8.4 million Americans remain unemployed, the feds added, far higher than the 5.7 million unemployed in February 2020.
The number of people who have been unemployed for 27 weeks or more fell by 246,000 to 3.2 million, following a drop of 560,000 reported for July.
Hiring was not nearly as robust as many economists expected through the spring. The jobs report disappointed in both April and May even as job openings soared to record highs.
The recovery of the labor market kicked into gear this summer, but economists have expressed concern about the next few months as COVID-19 cases surge due to the Delta variant and much of the country heads into the colder weather months.
And Friday’s monthly jobs report will be the last to include data that reflects the federal government’s pandemic-inspired unemployment benefits program, which gives people an extra $300 per week and has been blamed for keeping workers on the sidelines as companies scramble to hire.
Those extra benefits end next week, knocking millions off unemployment. Economists will be watching to see if those people look to replace that income with a job or fall out of the labor force entirely.
Despite these concerns, the economy has so far showed few signs of slowing down. The number of Americans newly seeking jobless benefits fell to a fresh pandemic-era low last week of 340,000, the Labor Department said Thursday.
The slowdown in hiring changes investors’ outlook for the rest of the year, Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said.
Officials at the Federal Reserve have recently voiced optimism about the state of the economy and the pace of the labor market’s recovery. Fed Chairman Jerome Powell said last week that the central bank could begin reversing its easy-money policies as soon as this year.
The tapering of those policies is likely baked into the stock market at this point, but if the timeframe is pushed back, it could help send stocks even higher, at least for the time being.
The latest round of weak numbers could change that timeframe, Zaccarelli said.
“A surprisingly low jobs number this morning clouds the tapering outlook considerably as only 235k jobs were added in August, likely giving the Fed pause and pushing out their plans to announce their bond taper plans,” he said.
“Many people believed that the Fed would announce their taper plans at this month’s FOMC meeting and that is no longer likely. Instead, the Fed is going to need to wait to see further improvement in the job market and may not be able to announce their taper plans until the November meeting.”