U.S. Hiring Slows Sharply

U.S. hiring downshifted abruptly in August with the smallest jobs gain in seven months, complicating a potential decision by the Federal Reserve to begin scaling back monetary support by year-end.

Non-farm payrolls increased 235,000 last month, trailing all forecasts, after an upwardly revised 1.05 million jobs gain in July, a Labor Department report showed Friday. The median estimate in a Bloomberg survey of economists had projected that non-farm payrolls would increase by 733,000 in August. Employment in leisure and hospitality, which has posted strong gains recently, was flat last month amid the spreading delta variant and persistent hiring challenges.

Meanwhile, the unemployment rate fell from 5.4 percent to 5.2 percent. Unemployment fell for every major demographic group except Black Americans, which saw a pickup to 8.8 percent.

The deceleration in hiring likely reflects both growing fears about the rapidly spreading delta variant of Covid-19 and difficulties filling vacant positions. In August, 5.6 million people reported they were unable to work because of the pandemic, up from 5.2 million a month earlier, the Labor Department said.

The surge in infections, which has already curbed consumer activity and disrupted in-person schooling and return-to-office plans, may have led businesses to grow more cautious about hiring and dissuaded some workers from pursuing high-contact employment opportunities.

Some analysts have downgraded their third-quarter economic growth forecasts as consumer spending has weakened recently. Sal Guatieri, senior economist at BMO Capital Markets, said the August jobs report disappointment likely warrants a cut to his third-quarter growth tracking estimate of 6 percent.

The latest figures have the potential to limit calls for the Fed to start tapping the brakes on its monetary stimulus. The report could also bolster President Joe Biden’s push for trillions of dollars in long-term social spending, after West Virginia Senator Joe Manchin, a pivotal Democrat, this week demanded a “strategic pause” on the plan.

After the August jobs report was released, the yield on the 10-year Treasury note rose, while the dollar fell and the S&P 500 opened lower.

Taper Timing

Fed officials, including Chair Jerome Powell, have emphasized the importance of the monthly employment reports as a guiding metric for the timing of when to begin reducing its asset purchases. The disappointing report reinforces the central bank’s data-driven approach to the timing of tapering.

“Before delta, we were looking for 1 million-plus payroll gains in the fall, but that’s now going to be a real struggle, suggesting that Chair Powell will be in no hurry to be pushed into tapering while the labor market picture so uncertain,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.

Employment in leisure and hospitality was flat in August, held back by a 42,000 decrease in payrolls at restaurants and bars. Retail trade, construction, government, and healthcare employment also declined last month. Payrolls at professional and business services, transportation and warehousing, and manufacturing all increased last month. Factory employment climbed 37,000 in August, reflecting a sizable boost at motor vehicle plants.

U.S. payrolls are still 5.3 million below their pre-pandemic level.

Meantime, the labor force participation rate—the share of Americans who are employed or looking for work—was unchanged last month at 61.7 percent, although it edged down for women aged 25 to 54. Participation remains restrained by persistent child-care challenges and virus concerns. Many economists and parents had pointed to September as the month when those factors would have largely abated, but the delta variant has pushed back that timeline: Uncertainty remains over the path of the virus. While hospitalizations are starting to fall in recent hot spots, there is concern about it spreading to other parts of the country.

Challenges for Employers

Attracting and retaining employees has been a massive challenge for businesses ranging from restaurants and retailers to manufacturers and builders. As a result, companies like Amazon.com Inc. have raised wages and offered one-time bonuses to attract candidates. Kohl’s Corp. announced bonuses for hourly workers who stay with the department store operator through the holiday season.

Earnings have risen in recent months as businesses raise pay to attract candidates. Overall average hourly earnings rose 0.6 percent last month, twice as much as forecast, though possibly a reflection of the composition of August employment. Average weekly hours were unchanged at 34.7 in August.

The August jobs report comes just before the September 6 official end of the supplemental pandemic unemployment insurance programs. Roughly half of U.S. states ended the benefits early in an attempt to assuage worker shortages. Labor market data from individual states has shown little indication that the change to unemployment benefits has materially boosted employment so far, but some companies have attributed increases in applications to the expiration of those benefits.

—With assistance from Kristy Scheuble, Matthew Boesler & Sydney Maki.

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