The August jobs report out just before Labor Day missed big. The economy added just 235,000 new payrolls, dramatically falling short of expectations of 733,000 — by a third.
The unemployment rate was in line with expectations at 5.2%, down from July's 5.4%.
So why did it miss so big? Expectations underestimate the rising number of COVID cases. It sounds obvious in retrospect, but this month’s data encompasses the Delta variant’s economic impact, particularly on the leisure and hospitality sector.
After adding 415,000 jobs in July, the hospitality and leisure sector added zero net jobs in August.
“The catalyst for the slowdown appears to be the recent surge in the COVID cases as high touch sectors such as leisure and hospitality (0k) and retail trade (-29k) experienced a meaningful slowdown in employment activity,” Bank of America analysts wrote in a research note Friday morning.
Analysts agreed across the board that, as Indeed economic research director Nick Bunker wrote, "Today’s report has the Delta variant written all over it.”
The fact that leisure and hospitality sectors fared worst underscored this pandemic-factor: “Employment in the most COVID-sensitive industries dropped in August while the rest of the economy merely slowed down,” Bunker pointed out.
The fact that the unemployment rate stayed the same also means that the number of people looking for work went down considerably.
“If it is not demand driven — employers are still looking to hire — it must be supply driven,” wrote Brad McMillan, Chief Investment Officer for Commonwealth Financial Network. “It looks to have come from workers electing not to enter the workforce.”
The problem, once again, is the pandemic rather than “general economic weakness,” he added.
In many ways, the economy is doing relatively well, McMillan pointed out, noting that measures like average hours per week, average wages, and manufacturing jobs are healthy and increasing. Similarly, people are still spending and there is no shortage of jobs available. On top of that, the economy is clearly growing — Q2 GDP showed the economy expanded 6.5%, though it did miss exepectations.
Since there is consensus that these employment-related issues are pandemic-related, getting the virus back under control could keep this to a short-term bump in the road.
This jobs report “really reflects in a lot of ways that the pandemic is the economy, the economy is the pandemic,” Adam Ozimek, chief economist at Upwork, told Yahoo Finance Live.
Still, we are far from being back to normal, economically speaking.
“A fair amount of progress has been made, but the economy will not get a sure footing until the pandemic is successfully dealt with,” wrote Bunker. “We have 5.3 million fewer jobs than before the pandemic and we will not get back there anytime soon until we have more certainty about the public health situation.”