America’s jobs recovery hit a major roadblock in August as the Delta variant threatened the labor market recovery, and the US economy added far fewer jobs than expected.
Only 235,000 jobs were added back to the economy last month, the lowest number since January, vastly missing economists’ expectations.
“Delta is reducing consumer demand and threatening the reopening,” said Glassdoor Senior Economist Daniel Zhao. “Ultimately it’s just a harsh reminder that the pandemic has control of our destiny,” he told CNN Business.
In normal times the August report would have been a reason to celebrate, but nowadays it’s a sharp slowdown from the buoyant jobs reports earlier in the summer. Friday’s report fell far short of economists’ already reduced expectations: Predictions for Friday’s jobs report had been revised down to 728,000 from 750,000 earlier after Wednesday’s ADP Employment Report, which count private payrolls, also disappointed.
Nearly a year and a half into the recovery, the US economy remains 5.3 million jobs short of where it was in February 2020, before Covid-19 threw a wrench into the gears.
Last month, 5.6 million people said they hadn’t been able to work or worked reduced hours because their employer was affected by the pandemic.
Amid all the bad news, there were also some silver linings: The unemployment rate fell to 5.2% in August from 5.4% before, the Bureau of Labor Statistics reported Friday. Also, the job gains for July were revised up to 1.1 million, the first gain of a million jobs or more since August 2020.
The Delta variant is leaving its mark
Meanwhile, the leisure and hospitality industry, which led job gains during much of the recovery after the sector got hit the hardest during lockdowns, wasn’t among the top hirers in August. Instead, professional and business services, transportation and warehousing, private education and manufacturing recorded the biggest job gains. In leisure and hospitality, jobs were mostly unchanged in August, but restaurants and bars registered a loss of 42,000 jobs.
The leisure and hospitality sectors had cited worker shortages in previous months, noted Zhao. But the Delta variant has caused Covid-19 infections to rise across the nation, leading to a return of mask mandates and health safety guidance – halting some people’s travel plans.
The retail sector also shed jobs in August.
Concerns about getting infected and what Delta might mean for the recovery also began weighing on consumer sentiment, which collapsed to its lowest level since December 2011 in August.
The slowdown in jobs growth is the latest dark cloud hanging over the recovery in recent months. Economists are increasingly concerned about the rest of the year. Some worry about a repeat of last winter – when Covid cases rose and led to renewed restrictions that resulted in job losses in December. That would be bad news for the recovery.
Economists had been hopeful that the return to school this month would help ease the childcare burden on so many Americans and allow many people to go back to work. But Delta could ruin that, too.
“It does seem like school reopenings will be disrupted, which will continue to keep parents out of the workforce,” Zhao said.
The recovery has been uneven, and that trend continued in August.
Unemployment rates fell for White, Asian and Hispanic workers, while Black joblessness rose to 8.8% from 8.2% before.
The unemployment rate for teenagers jumped to 11.2% from 9.6% before.
What this means for the Fed
The August jobs report was also really important for investors and the Federal Reserve, which is now more likely to leave its ultra-accommodative policies in place for a while longer.
The central bank slashed interest rates and embarked on a massive asset buying program at the start of the pandemic to support the economy. But the recovery has come a long way since, leading investors to wonder when the Fed will move to normalize its policies.
Rapidly rising inflation and improvements in the labor market created conditions that made it more likely for the Fed to start cutting back on its monthly asset purchases. But with a big jobs miss like in Friday’s report, odds are the central bank will stick with its policies until it sees some more convincing numbers.