August job report expectations had already been revised down from 750,000 to 728,000. Imagine the consternation when it came out that only 235,000 jobs were added to the economy last month, the lowest total since January.
Even though businesses are open and most schools are back to in-person learning, the surge of the Delta variant of COVID-19 has kept consumers from venturing too far from home. Restaurants and bars reported losses of 42,000 jobs in August, and the retail sector also reported losses of 29,000.
Federal Reserve chair Jerome Powell hinted last week that a couple more months of solid jobs numbers could trigger the central bank to taper its bond buying and raise interest rates. The disappointing August report surely puts a pause on those plans.
“The weaker employment activity is likely both a demand and supply story — companies paused hiring in the face of weaker demand and uncertainty about the future while workers withdrew due to health concerns,” Bank of America economist Joseph Song said in a note to clients.
The bad news comes as the federal government lets enhanced unemployment benefits expire on Monday. Studies in states that have already ended the enhanced benefits showed that the lapse led to a significant decrease in consumer spending that far outpaced new earnings by newly employed workers.
“The catalyst for the slowdown appears to be the recent surge in the COVID cases as high touch sectors such as leisure and hospitality (0k) and retail trade (-29k) experienced a meaningful slowdown in employment activity,” Bank of America analysts wrote.
The jobs numbers are further reinforcement that the economic recovery is intrinsically tied to controlling COVID-19 and that the former will not improve until the latter does. Consumers are not going to feel comfortable behaving and spending normally unless they feel safe.