Full story: US adds just 235,000 jobs in August as Delta variant spreads
Edward Helmore
The US economy added just 235,000 jobs in August, a sharp drop from preceding months, as employers cut back hiring plans amid the spread of the Delta variant of the coronavirus virus.
The unemployment rate declined by 0.2 percentage points to 5.2% from 5.4% in July and has fallen dramatically from a high of 14.7% in April last year. So far this year, monthly US job growth has averaged 586,000, according to the Bureau of Labor Statistics.
But August’s hiring slowdown was unexpected. Economists polled by Bloomberg had anticipated a gain of 725,000 jobs for August, after surging over 1m in July.
In a White House address, Joe Biden largely glossed over the disappointing figures, describing the US economy as “durable and strong” and claimed his administration had added double the number jobs of any prior first-year president.
Biden say:
“While I know people wanted to see a larger number today, and so did I, what we’ve seen this year is continued growth month after month in job creation.
“Wages are going up. This is the kind of growth that makes our economy stronger, and not just boom or bust.”
According to the latest government figures, job increases in August came from gains in professional and business services, transportation and warehousing, private education, and manufacturing.
But employment in retail declined over the month as employers backed off from adding workers in lower-wage industries such as transportation, leisure and hospitality in response to weakening demand for those services, itself a reflection of the effect that the Delta variant is having on consumer activity.
About 5.6 million people did not work at all or worked fewer hours at some point in August due to the pandemic, an increase of 400,000 on July.
“The drop-off in high contact services employment growth suggests that, even though few states have reimposed restrictions beyond mask mandates, the Delta variant is nevertheless weighing on activity by scaring off customers,” said Paul Ashworth, chief US economist at Capital Economics.
The Europe-wide Stoxx 600 index has dropped almost 0.6%, its biggest fall in almost two weeks.
In London the FTSE 100 lost 0.35% or 26 points to end at 7,138.
Online grocery operator Ocado was the top FTSE 100 faller, down 4%, with travel and hospitality firms, energy producers and industrial stocks also weaker today.
European stock markets Photograph: Refinitiv
Ed Moya of OANDA says:
Job growth is moderating, but Wall Street still believes this is a strong labor market. The delta variant impact on hiring and the services sector will be transitory, which means a couple more months of noisy economic readings. The S&P 500 index didn’t know what to do with this lackluster NFP report. US stocks struggled to hold onto earlier gains on concerns the labor market recovery will struggle as economic growth dramatically slows down this quarter, inflation stays high, and a bumpy approval for the Democrats $3.5 trillion spending plan.
Stocks eventually drifted lower on concerns the impact of delta variant could weigh on the consumer, Chinese stocks continue to battle a plethora of regulatory hurdles, and inflationary fears are intensifying.
With the dollar weakening, the pound hit its highest level in almost three weeks, at around $1.3866.
Investment manager Steven Rattner (the former head of president Obama’s Auto Task Force) is concerned that America’s labor force participation rate remains weak (unchanged at 61.7%).
He fears that many Americans have dropped out of the jobs market for good:
Unfortunate detail in jobs report: Leisure & hospitality, which had averaged +350K jobs/month for the last 6 months, saw NO gains in August. Overall level remains 1.7M jobs below Feb 2020. pic.twitter.com/10AjdMg2hA
More importantly, however, the labor force participation rate was also unchanged—and remains severely depressed. At this point, we have to consider the likelihood that many Americans (retired, disillusioned, etc.) have stopped working permanently. pic.twitter.com/JypqrXlnWs
Biggest hint August payrolls were affected by delta: Leisure & Hospitality jobs flat, restaurant/bar jobs fall, but hours worked in L&H fall. Less labor supply meets lower consumer demand. pic.twitter.com/VXnAhGyd8Z
Biden: the economic recovery is durable and strong
US President Joe Biden delivers remarks on the August jobs report in the State Dining Room at the White House in Washington, DC. Photograph: Jim Watson/AFP/Getty Images
President Joe Biden has spoken about today’s jobs report now, and insisted that the economy is strong enough to weather the pandemic.
Despite the impact of the Delta variant, we’re seeing a recovery that is durable and strong, Biden says, as he defends his track record on the economy.
He points out that the economy did add jobs in August [235,000, down from just over one million in July], and that the unemployment rate fell to 5.2%.
But he also acknowledges that people were looking for a higher jobs number today, as indeed he was, and that the delta variant hit payrolls growth.
Today’s report shows that the steps we’ve taken, passing the Rescue Plan and vaccinating 175m people, make our economy capable of growing and adding jobs even in the face of this continuing delta surge.
There’s no question the delta variant is why today’s jobs report isn’t stronger. I know people were looking, and I was hoping, for a higher number.
Biden says he’ll lay out steps next week to combat the Delta variant, and address the fears and concerns over the pandemic, including protecting schools, businesses, the economy and families from the threat of Delta.
Biden says the US has added around 750,000 jobs per month over the last three months, and added jobs in each of his first seven jobs reports.
He also points to the rise in earnings, saying wages are going up too (average hourly earnings jumped 0.6% in August).
Biden adds that America is the only developed country whose economy that is bigger than above the pandemic. This progress means that America is able to weather the ups and downs of the delta variant, he says.
Pres. Biden acknowledges wanting to see "a larger number" in lackluster August jobs report, but says vaccines and federal COVID relief have helped create "an economy and a job market that can weather the ups and downs of the Delta variant, and anything else that comes our way" pic.twitter.com/CbwgI1Iy1C
In another blow, America’s service sector has posted its slowest rise in activity so far this year -- and a sharp slowdown in hiring.
Data firm IHS Markit says there was “a marked weakening” in the growth rate across the U.S. service sector last month, with output rising at the slowest rate for eight months.
New business grew at the slowest since August 2020, as supply constraints limited growth. Weak foreign client demand also hit the sector - with new export orders down for the first time since February.
And jobs growth was the slowest for 14 months.
Markit adds that some companies struggled to find workers:
Although services firms commonly highlighted greater requirements for staff due to a further rise in new orders, companies noted significant issues retaining employees and finding suitable candidates for current vacancies.
“The key takeaways from today’s disappointing jobs report are that the Delta variant has unquestionably slowed the jobs recovery and slashing unemployment benefits early did not bring people back to work.
The biggest threat to the recovery remains a weak labour market. The Fed should stop reacting to the fears of inflation hawks and focus instead on reaching full employment and sustainably achieving its 2% inflation objective.”
Worryingly, more Americans were unable to work last month because their employer closed or lost business due to Covid-19.
Around 5.6m people did not work at all or worked fewer hours at some point in August due to the pandemic, an increase of 400,000 on July.
Evidence of Delta variant impact on job mkt: 5.6M unable to work because employer hit by pandemic (was 5.2M in July) & leisure/hospitality payrolls unchanged after rising an avg of 350K/mo over the past 6 mo
That’s another sign of the impact of Delta variant, says Robert Frick, corporate economist at Navy Federal Credit Union:
“The Delta wave clearly knocked down employment in August, with the number of people unable to work because their employer was hit by the pandemic rising by 400,000. Also, hiring in leisure and hospitality came to a screeching halt, likely because fewer Americans are frequenting bars and restaurants.
Even if the Delta wave peaks in September, as many experts believe, that still means we are likely to see a weak jobs report for this month as well.”
No job gains in leisure and hospitality this month, and jobs still down 10% compared to pre-pandemic levels. Job gains in August occurred in professional and business services, transportation and warehousing, private education and manufacturing. pic.twitter.com/rCP6kxlF99
The New York stock market has opened lower, as investors digest the weak jobs report.
Dow Jones industrial average: down 140 points or 0.4% at 35,305 points
S&P 500: down 13 points or 0.3% at 4,524 points
Nasdaq: down 11 points or 0.1% at 15,320 points
Wall Street is looking for clues as to when the Federal Reserve might feel the economy is strong enough to start slowing its $120bn-per-month bond buying programme, which has been supporting asset prices.
The slowdown in hiring last month, with just 235,000 new jobs, does not appear to show the “substantial further progress” towards the Fed’s goals of maximum employment.
It also suggests the economy is weaker than thought.
Here's how the major U.S indexes opened trading today
Dow Jones $DJIA opened at $35,350.90 down 0.26% S&P 500 $SPY opened at $4,529.06 down 0.17% NASDAQ Composite $QQQ opened at $15,313.53 down 0.12%
Paul Ashworth, chief North America economist at Capital Economics, thinks an announcement on tapering is now unlikely to come this month:
The well-below consensus 235,000 gain in non-farm payrolls in August suggests that the Delta variant is beginning to weigh on the economy, with leisure & hospitality employment unchanged on the month.
Even allowing for the fact that first estimates for August often disappoint on the downside, the extent of the slowdown in jobs growth all-but rules out any tapering announcement at this month’s FOMC meeting and, if this weakness persists, then it could be pushed into early next year.
Robert Alster, CIO at wealth manager Close Brothers Asset Management, says:
In the eyes of the market, the US labour data is a double edged sword. The staggering weakening we’ve seen in August’s labour activity is a sign that the delta variant is having a hugely damaging impact, which will in turn hit growth and confidence.
But conversely, strong labour data - as seen in June and July’s nonfarm payrolls - would push the Fed towards a more Hawkish approach to monetary policy, with a tapering of asset purchases as soon as November and a rate rise in 2022.
This runs the risk of stifling US growth before it has had a chance to bed in – which could be the push the Democrats need to remove [Fed chair Jerome] Powell from office. After eighteen months of uncertainty, stability is the order of the day – we must hope for a steady pace of recovery, rather than volatile booms and busts which will spook consumers, investors, and policy-makers alike.”
Employers added just 235,000 jobs in August, down from the upwardly revised 1,053,000 in July, as Delta spreads.
Finally got a 1 million month job gain, but marred by the slowdown in August. And doesn't look much like "substantial further progress"#jobsreport#jobsday 3/ pic.twitter.com/rJbDPEPOIA
“The labor market recovery hit the brakes this month with a dramatic showdown in all industries. Ultimately, the Delta variant wave is a harsh reminder that the pandemic is still in the driver’s seat, and it controls our economic future.
In August, just 235,000 jobs were added, well below expectations. The unemployment rate fell to 5.2 percent, dropping from 5.4 percent in July as new jobs are continuing to be added to the economy. Despite storm clouds from the Delta variant, record high demand for workers is keeping the labor market recovery afloat.
The share of American workers working remotely over the last four weeks surged to 13.4 percent in August, up from 13.2 in July as the Delta variant forced companies to pull back on reopening plans. A resurgence in remote work is likely to delay the economic recovery even more for central business districts reliant on corporate office workers.
Payrolls are 5.3 million below pre-crisis levels. While payrolls have recovered dramatically given the magnitude of the Covid recession, the deceleration in August raises the specter of a slowdown similar to what we saw last winter.#jobsreport#jobsday 7/ pic.twitter.com/BC3FXXMyRF
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