It was a strong summer, with nearly 2.5 million jobs added between May and July, even when the Delta variant began to increase Covid-19 infections, but now economists believe the month of ‘August may not have been so strong.
Economists surveyed by Refinitiv still predict that 728,000 jobs were added last month. But that forecast was revised from 750,000 in early Wednesday after a disappointing reading of ADP employment reports, which look at private sector payrolls.
It was the second time in a row that the ADP report was significantly below expectations: 374,000 jobs were added in August, compared to the 613,000 forecast, according to Refinitiv.
The two labor market measures are not correlated, but the ADP report, which comes out first, is seen as a barometer for job data at the end of the week.
“Our latest report suggests that the labor market recovery has slowed,” ADP chief economist Nela Richardson told CNN Business in a call to reporters. Increased spread of the virus can prevent people from returning to work. “The final estimate of labor earnings for August is likely to fall short.”
That doesn’t bode well for Friday.
But things have been a bit confusing. Last month’s ADP bearish report was followed by a strong report on government occupations, for example. Forecasts also vary widely. Moody’s Analytics predicts 500,000 jobs were added in August, while UBS expects one million, according to Refintiv. It serves to remind us that making predictions during the evolution and recovery of the pandemic economy is still very hard.
Four key trends are driving the job market right now, Richardson said: Covid spread across the Delta variant, diminishing consumer confidence, high labor demand creating labor shortages and an uneven recovery in the shape of K.
“The uncertainty of the Delta variant has exacerbated the unevenness of the recovery,” he said.
Stimulus programs end
And all of this happens just when the unprecedented stimulus that helped the economy during the worst moment of the pandemic is over.
Three U.S. government programs designed to help the unemployed over the past year and a half end this month. About two dozen states have already completed at least one of the federal unemployment benefit programs, opting to close them earlier this summer.
Last week, 340,000 Americans applied for unemployment benefits, adjusted for seasonal fluctuations, a new era of low pandemic. According to the Department of Labor, claims from the pandemic unemployment assistance program, which provides benefits to workers such as the self-employed, dropped to 102,405. PUA benefits will be exhausted in a matter of days. Excluding seasonal adjustments, a total of 390,156 claims were filed last week in both programs, still well above pre-pandemic levels.
Both investors and the Federal Reserve will keep a close eye on Friday’s job reports. The Fed cut interest rates to zero and committed to a huge plan to buy monthly assets 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 recoup those monthly purchases soon, confirming what investors expected. Many believe the Fed wants to see another strong jobs report before officially announcing the setback or downsizing of its purchasing program.
That means there are a lot of things in Friday’s report. If the number is high, it gives more credibility to the theory that the Fed will announce a reduction sooner rather than later. Stocks could fall in response because ending monthly asset purchases is the first step on a long road to higher interest rates.
But if the job report fails to meet expectations, the reduced ad could be delayed. This would give the stock market even more room to run.
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