Labor Market Recovery Slows in August
- Strong hiring momentum slowed precipitously in August, as nonfarm payrolls rose by 235k jobs, well short of market expectations (+725k). That followed upward revisions to June and July of +134k jobs. The unemployment rate dropped 0.2 points to 5.2%, after ticking down to 5.4% in July.
- As of August, nonfarm payroll employment was down by 5.3 million, or 3.5% from its pre-pandemic (February 2020) level.
- Employment in leisure and hospitality, the sector emblematic of the pandemic was flat for the month. Gains in art entertainment and recreations (+36k) were offset by job losses at restaurants and bars (-42k). The sector remains down 10.0%, or 1.7 million jobs, versus pre-pandemic levels.
- Job gains were mixed across other industries. Once again, job gains were up strongly in professional and business services (+74k). Gains were also seen in transportation and warehousing (+53k), other services (+37k), information services (+37k), finance (+16k) and manufacturing (+37k). Losers for the month were healthcare and social assistance (-6k), retail trade (-29k), and state government (-25k, most of which was a 20k drop in state educational services payrolls).
- Atypical seasonal patterns in education hiring due to pandemic-related school closures and re-openings make interpretation of local government results challenging. As with state government education payrolls (-20k), local government education pulled back (-6k versus +225k in July) while private education (+40k) was up strongly again. What is important is that all sectors remain well below their pre-pandemic levels.
- The drop in the unemployment rate was helped by the continued stagnation in labor force participation, which remained unchanged in August at 61.7%. This is 1.6 percentage points below what it was prior to the pandemic (February 2020).
- The pandemic continues to affect work life as the share of people teleworking was 13.4% in August (up from 13.2% in July) and, among those not in the labor force, 1.5 million continue to report being prevented from looking for work due to the health crisis (relatively unchanged from July).
Key Implications
- America's labor market recovery slowed in August as the pace of hiring dropped to levels last seen in January (+233k). The pace likely reflects the uncertainty presented by the spread of the Delta variant and constraints on labor availability.
- The risks in the coming months are firmly to the downside due to the ongoing spread of the virus. As the Delta variant continues to circulate it is likely to lead to some consumer caution in areas where infections are rising strongly. This in turn could weigh on hiring in high-contact sectors in the near term.
- However, as the Delta variant impact fades with time, we expect the unemployment rate to continue to fall as more pandemic-related constraints on work ease and activity normalizes.
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