September 03, 2021 | 09:15
Payrolls' Partial Payback
Nonfarm payrolls pulled back to a 235,000 gain in August, but only after large net revisions that took the prior two-month average above one million. While the net revisions of 134,000 didn't offset the much weaker-than-expected August print (the consensus was north of 700,000), we'll need more data to discern whether job growth is breaking sharply. Evidence of surging infections was found in unchanged leisure and hospitality positions (albeit after averaging 350,000 in the past six months), with an outright decline in food services, as new mask and vaccine mandates in some areas dinged indoor dining. Retail also shed 29,000 positions, as consumer spending has also been dented by Delta. A retreat in local government eduction jobs, after quirky seasonal-adjustment inspired gains of late, also weighed on the headline figure, though private education jobs added 40,000 positions. A bright spot is that manufacturing gained 37,000 jobs, led, surprisingly, by the auto sector, though this could unwind in September as some automakers have extended production cuts due to continued microchip shortages. Payrolls are now down 5.3 million (-3.5%) from pre-pandemic levels, but have averaged a hearty 586,000 per month this year.
The household survey printed 509,000 net new jobs in August after over one million in July, lifting the employment rate to the highest level since March 2020, though it's still 2.6 ppts below pre-virus levels. This carved another couple of tenths off the unemployment rate to 5.2%. The participation rate remained stalled at 61.7%, within the narrow range of the past year. It doesn't seem like the early end of emergency UI programs in many states is having a significant impact, at least yet.
With reported labour shortages intensifying, average hourly earnings picked up, rising 0.6% in the month and 4.3% in the past year.
What didn't pick up was aggregate work hours, as the monthly pace slowed to 0.2% from 0.6%, though the level so far in Q3 is a respectable 4.3% above that of Q2 (annualized). Still, the disappointment likely warrants a cut to our Q3 GDP growth call of 6.0%.
Bottom Line: This wasn't a bad jobs report, in fact we still score it at a healthy 79.4 in August, well above a neutral 50 grade. But the softer trend in work hours, coupled with the further sharp reversal in auto sales last month, flags some trim to our Q3 GDP forecast. Surging infections have led to some areas reimposing mask mandates and introducing vaccine mandates, and causing event cancellations, all crimping consumer demand. Piling on are persistent supply chain disruptions made worse by rising infections globally, and surging consumer prices that have eroded spending power. Chair Powell's non-urgency to taper will find some modest support from the forecast downgrades.