What is obvious in the August jobs report that was released on Friday is that the delta variant has affected overall economic activity and hiring.
Hiring slowed to 235,000 in August, down from a revised gain of 1.053 million jobs in July.
Until a small portion of the public decides to get vaccinated, both the economy and hiring will be held hostage to the ebb and flow of the pandemic. The decisions of a few not to get vaccinated are holding back the many at this point.
Hiring slowed to 235,000 in August, down from a revised gain of 1.053 million jobs in July, as the unemployment rate declined to 5.2%, according to the Bureau of Labor Statistics.
Average hourly earnings climbed by 0.3% on the month and by 3.9% on a year-ago basis. The prime-aged labor force among women who are 25 to 54 years old declined to 75.4% and increased to 88.4% among men. Both figures are below the 76.9% and 89.3% respective peaks during the previous business cycle.
The pandemic’s impact
The Bureau of Labor Statistics conducts a special survey measuring the effects of the pandemic on the labor market. In August, 5.6 million people reported that they had been unable to work because their employer closed or lost business because of the pandemic—an increase of 400,000 from July.
The August survey indicated that 5.6 million people reported that they had been unable to work because of the pandemic.
Of those 5.6 million people, 13.9% received at least some pay from their employer for hours worked, up from 9.1% in July. Among those not in the labor force in August, 1.5 million were prevented from looking for work because of the pandemic, which was little changed from July.
The biggest reason the top-line figure arrived well below consensus was the significant slowing in leisure and hospitality hiring, which fell from 415,000 in July to zero in August. That comes close to matching the 400,000 increase in the special survey of those who reported they were unable to work because their employer closed or lost business because of the pandemic.
If one wanted to see strong evidence of the delta variant’s impact on hiring and the economy, this is it.
The policy impact
The August jobs report will be a factor in the Federal Reserve’s decision of when to start easing its monthly asset purchases. My sense is that this will affect that decision on the margin, and that calls for a September announcement followed by an immediate tapering should now be taken off the table. This employment report did not strengthen the hands of the hawks at the central bank.
But this report aligns well with our call for a November announcement and a December start to tapering operations, which we think affirms the majority view on the Federal Open Market Committee and underscores current investor expectations.
We do not expect that this report, despite the disappointing top-line number, will materially affect market valuations on inflation expectations, current yields or equities.
Still, we expect that hiring will accelerate strongly through November as schools reopen and the impact of the delta variant crests. The September report will be interesting to watch as the impact of the delta variant and Hurricane Ida are felt.
Overall, the next few months will determine the major policymaking decisions that will affect the economy into next year and shape expectations of when the central bank begins to normalize its policy framework and eventually raise interest rates. We do not expect that to begin until 2023 at the earliest.
Over the past three months, total employment has advanced by 2.25 million, or an average of 750,000 jobs. Over the past six months, that average is 653,000 jobs. We expect that the gains throughout the rest of the year will be in that range.
But even with this hiring, the economy remains 5.58 million jobs short of its peak of 158,735,000 during the previous economic cycle.
The household survey
In the August jobs data, the household survey, which is used to estimate the official unemployment rate, is clearly the shining light in an otherwise dour report.
The unemployment rate declined to 5.190% on a three-decimal basis as the household estimate of employment change increased by a strong 509,000 jobs following the 1.043 million increase in July. That gain is above the six-month average of 485,830.
The labor force participation rate held steady at 61.7% and the unemployment-to-population ratio inched up to 58.5%. The median duration of unemployment declined to 14.7 weeks. The underemployment rate of those marginally attached to the labor market or working part time for economic reasons, which is known as the U-6 estimate, declined to 8.8% from 9.2% in July.
Beneath the headline total, hiring in the private sector increased by 243,000, with goods-producing jobs increasing by 40,000 from 64,000 previously. Construction jobs declined by 3,000 and manufacturing jobs increased by 37,000. Private service-providing hiring increased by 203,000. Information jobs were up by 17,000, financial employment rose by 16,000 and business services increased by 74,000. Education and health jobs increased by 35,000 and government hiring declined by 8,000.
The seasonal adjustments inside government and education hiring clearly did not materialize, and this area of the estimate is ripe for an upward revision over the next two months.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.