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It has been a strong summer, with nearly 2.5 million jobs added between May and July even as the Delta variant began to increase Covid-19 infections – but economists are now increasingly cautious of the fact that August may not have been so strong.
Economists polled by Refinitiv still predict that 728,000 jobs were created last month. But that forecast was revised down from 750,000 early Wednesday after a disappointing reading of ADP’s employment reports, which examines private sector payrolls.
It was the second time in a row that the ADP report was significantly below expectations: 374,000 jobs were created in August, against 613,000 expected, according to Refinitiv.
The two labor market measures are not correlated, but the ADP report, which comes out first, is seen as a barometer of employment data later in the week.
“Our latest report suggests that the labor market recovery has slowed,” Nela Richardson, chief economist at ADP, told CNN Business on a call with reporters. An increased spread of the virus could again prevent people from returning to work. “The final estimate of job gains for August will likely be insufficient.”
This does not bode well for Friday.
But things got a bit confused. Last month’s pessimistic ADP report was followed by a strong government employment report, for example. Forecasts also vary widely. Moody’s Analytics predicts 500,000 jobs were created in August, while UBS expects 1 million, according to Refintiv. This is a reminder that it is always very difficult to make predictions during the evolution and recovery of the pandemic economy.
Four key trends are driving the job market right now, said Richardson: Covid has spread via the Delta variant, declining consumer confidence, high demand for labor creating a shortage of workers and a uneven K-shaped recovery.
“The uncertainty of the Delta variant has exacerbated the inequality of the recovery,” she said.
End of stimulus programs
And all of this is happening just as the unprecedented recovery that has helped the economy through the worst of the pandemic comes to an end.
Three US government programs designed to help the unemployed over the past year and a half are ending this month. About two dozen states have already ended at least one of the federal unemployment benefit programs, choosing to shut them down in early summer.
Last week, 340,000 Americans filed for unemployment benefits, adjusted for seasonal fluctuations, a new low in the pandemic era. Claims under the Pandemic Unemployment Assistance Program, which offers benefits to workers such as the self-employed, slipped to 102,405, according to the Labor Ministry. The benefits of PUA will wear off in a few days. Without the seasonal adjustments, a total of 390,156 claims were filed under the two programs last week, still well above pre-pandemic levels.
Investors and the Federal Reserve will be watching Friday’s jobs report closely. The Fed cut interest rates to zero and embarked on a massive monthly asset purchase plan at the start of the pandemic. But at last week’s Jackson Hole Symposium, Fed Chairman Jerome Powell hinted that it might be time to reverse those monthly purchases soon, confirming what investors have been waiting for a long time. Many believe the Fed wants to see another solid jobs report before officially announcing the pullback, or cut, of its purchasing program.
This means that a lot of things depend on Friday’s report. If the number is high, it lends more credence to the theory that the Fed will announce a cut sooner rather than later. Stocks could fall in response, as ending monthly asset purchases is the first step in a long path to higher interest rates.
But if the jobs report falls short of expectations, the announcement of the cut could be delayed. This would give the stock market even more leeway.
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