Jobs report shows some COVID softening. But September will tell us if it's a blip, or if it spreads

Friday gave us the US jobs report for August, and after 3 months of big gains, there was a significant leveling off last month.

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.

And as expanded unemployment benefits expire, it's worth noting on this Labor Day that we are still 4.5 million private sector jobs below our pre-COVID peak, and have 5.3 million fewer jobs overall.

So there's still a gap there. However, I wonder how big that potential gap really is, because the household survey part of the jobs report was pretty positive. Not only did the unemployment rate drop from 5.4% to 5.2%, but it was for the "good reasons" - more people fiunding jobs, and more people looking for work.

Household Survey, August 2021
Labor Force +190,000
Employed +508,000
Unemployed -318,000

And if you dig into the actual jobs report, does it really seem that bad? The Bureau of Labor Statistics noted that the previous 2 months were revised up by a total of 134,000, so the 3-month average is still at 750,000 new jobs a month. Beyond cynical GOP messaging, I think the negativity comes from people looking to see if the COVID spike drags down everything else, to see if we are on the verge of an economic slowdown.

We have yet to see any real COVID effect in the amount of layoffs, as new unemployment claims have continued to fall, hittimg another pandemic-era low last week. But it does seem like hiring hit a wall in some industries, especially in industries reliant on face-to-face, in-person contact where people go out to spend.

Employment in retail trade declined by 29,000 in August, with losses in food and beverage stores (-23,000) and in building material and garden supply stores (-13,000). Retail trade employment is down by 285,000 since February 2020.

In August, employment in leisure and hospitality was unchanged, after increasing by an average of 350,000 per month over the prior 6 months. In August, a job gain in arts, entertainment, and recreation (+36,000) was more than offset by a loss in food services and drinking places (-42,000). Employment in leisure and hospitality is down by 1.7 million, or 10.0 percent, since February 2020.

And that’s not a seasonal adjustment item, as that adjustment counts on some jobs being shed in those industries in August. Which means the loss of jobs in those areas were more than normal, so I’m wondering if there were a lot of quits in those industries as COVID spiked back up. We'll have to wait until the JOLTS report later in the month to see if that is the case.

The entertainment industry's gains are intriguing, showing that live shows and sports were still operating "business as usual" last month (and still seem to be today). But the setbacks in accomodations and bars/restaurants are a warning signal, as both of those industries still are operating at employment levels well below their pre-COVID peaks, and both suffered last winter when COVID was at its worst.

A big positive in the jobs report came in manufacturing (+37,000), continuing a recovery in that industry that has seen it gain back 157,000 jobs in the last 4 months. On the flip side, (seasonally adjusted) construction employment peaked with a warm and optimistic March, and has drifted lower since then, especially in non-residential parts of the sector.

Sure seems like we could use an infrastructure package to get that flagging construction sector going, eh?

As mentioned above, I want to see more data on the spending side of things to see if COVID is downshifting the economy as a whole. Logically it should be, because when you have that many people going out of commission (and some ending up dead), it has to drop demand in some way. And with Fall looming, COVID needs to be put under control fast, or else we will see shifts in spending that lead to another dead season in many service industries. And a need to have government support those industries if they don't want to see a repeat of last Winter's closures and job losses.

Feels like developments in September, both by policymakers DC and in the decisions of everyday Americans, is going to go a long way toward letting us know if August was an odd on-emonth blip, or the sign of COVID-induced stagnation that sticks with us for the rest of 2021. Or longer.