The US economy added just 235,000 jobs in August, the government said Friday, far fewer than anticipated.
It was an astounding miss. Consensus expected 725,000 (figure below).
While expectations for a third consecutive blockbuster cooled in the wake of a disappointing ADP report earlier in the week, market participants have learned not to extrapolate from ADP in the pandemic era. So, the weak read on private payrolls didn’t move consensus as much as it might have in “normal” times.
No economist out of 70 surveyed expected a headline payrolls print below 400,000. The range was 400,000 to 1 million.
Revisions added 24,000 to June’s headline and a sizable 110,000 to July. The revised July total is now 1.053 million.
In a truly disconcerting development, food services and drinking places actually lost 42,000 jobs last month. Employment in leisure and hospitality was unchanged, after rising an average of 350,000 per month over the prior six months (figure below).
That’s a bad omen.
Delta variant concerns have given investors pause as the summer winds down. Rising caseloads in the US and lingering vaccine hesitancy introduced still more uncertainty into a hopelessly ambiguous situation.
Jobless claims reached a fresh pandemic low last week, and there’s still no consensus on what the expiration of pandemic unemployment programs will mean for an acute dearth of labor that’s manifested in the widest disparity between vacancies and hires in history. Employers in the services sector, and particularly in food service, have described difficulties in bringing workers back off the sidelines.
Manufacturing added 37,000 jobs last month. That was more than expected, but it hardly made up for the poor read on services sector hiring.
Average hourly earnings rose twice as much as expected, moving 0.6% higher from July, and 4.3% higher YoY. The market was looking for 0.3% and 3.9%, respectively.
Private payrolls rose 243,000, less than half of the 610,000 consensus wanted. The range there was 350,000 to 800,000.
The unemployment rate was 5.2%, the participation rate was unchanged at 61.7%.
On the face of it, this was a foreboding report. Wages surged and hiring was very weak relative to lofty expectations. While there was certainly a sense in which risk assets wanted to avoid a headline print that was “too hot” given the Fed’s focus on the labor market vis-à-vis the threshold for tightening, the magnitude of August’s miss won’t engender many good vibes, even if it does give policymakers plausible deniability when it comes to remaining cautious as the taper debate unfolds. In all likelihood, the stagflation crowd will feel vindicated by the sharp deceleration in payrolls and the upside surprise on wages.
“The Delta variant is softening data and easing any fears of overheating, without really challenging the re-opening theme because (nearly) everyone thinks this is a temporary challenge,” SocGen’s Kit Juckes said, prior to the release of August’s jobs numbers. He called the current macro conjuncture “strangely Goldilocksian.”
“The variant delays monetary policy normalization for even longer,” Juckes remarked, noting that “no tightening, and the combination of economic recovery and low rates can keep bond yields anchored, equities rising, credit spreads tight and G10FX firmly in ranges as the summer’s dollar longs are squeezed.” That’s still an accurate assessment, but if the data rolls over too hard, it’ll be more difficult for market participants to retain their “Goldilocksian” view of the macro conjuncture.
“While adding 500,000 jobs in a month is certainly strong by historic standards, it would raise concerns that the Delta variant is having a larger impact on hiring than is currently expected,” BMO’s Ian Lyngen and Ben Jeffery wrote Friday morning. “In such a case, the road toward maximum employment would be longer and less certain, thereby pushing out liftoff expectations,” they added. That goes double for a headline print just half as large.
At the least, August’s jobs report suggested markets have underestimated the Delta variant’s capacity to weigh on hiring.