Delta Variant, Supply Chain Issues Sack Economic Momentum

Nation adds just 235k jobs in August

If today’s jobs report were a football player, that player’s name would be Tony Mandarich. The feared and revered offensive lineman dominated at Michigan State. Sports Illustrated featured him on a cover with the headline “The Incredible Bulk”. The Green Bay Packers selected him second overall in the 1989 NFL Draft. He was a bust. So, too, was today’s employment report, which indicated that the nation added only 235k jobs in August.

Now it should be noted that Mandarich had his moments, starting every game during the 1997 season for the Indianapolis Football Team (I’m from Baltimore, figure it out). That’s impressive, but just not enough to justify the hype. Similarly, under normal circumstances, 235k net new jobs would be perfectly adequate, but the consensus forecast was that the nation would add about 750k jobs last month.

It would be simple to blame steroids for Mandarich’s issues, and the Delta variant for ours. The Covid-19 variant blitzed two especially vulnerable segments of the labor market: retail trade and restaurants/bars. It’s pretty clear that these segments flatlined in recent weeks, and hiring suffered. These segments performed like the Jacksonville Jaguars during the early stages of the pandemic, and the delta variant has laid them low once more. The retail trade sector lost 28.5k jobs in August and has now lost jobs in two consecutive months (-8k in July). Those losses were concentrated in the food and beverage store (-23.2k) and building material and garden supply (-13k) segments. Restaurants and bars lost 41.5k jobs in August.

But this was more than delta. The labor force participation rate remains stubbornly low at 61.7%. Anyone who expected a surge in labor force participation as enhanced federal unemployment benefits expire will likely be disappointed. A lack of affordable childcare, many two-income households deciding to move to one income, fear of both immunization and infection, and accelerated retirement will keep the labor market from performing as well as it could given all of the job openings staring prospective jobseekers in the facemask. Delta is also impacting global supply chains, which means that many inputs remain in short supply, prices are elevated, and achieving Lamar Jackson-type perfection remains elusive.

What’s more, flooding in New Orleans, New Jersey, New York, and some places not named “new” set the stage for up to two additional months of soft labor force gains as many restaurants, retailers, and other businesses remain shuttered.

There was some good news. Unemployment declined to its lowest level since March 2020, and now stands at 5.2%. We’ve regained about 76% of the jobs lost during the pandemic, and through the first 8 months of 2021, we’ve averaged 586k new jobs a month. If that rate continues, complete labor market recovery will be achieved by halftime 2022.

Nonresidential construction lost jobs in August, and you can read my in-depth thoughts on that over at Associated Builders and Contractors.

Three Key Takeaways

  1. Average hourly earnings for all private employees increased 0.6% in August and are up 7.8% since the start of the pandemic. Some of this is compositional (many of the lost jobs were in lower-wage segments), but labor shortages remain real, wages are sticky downwards, and wages are probably going to keep rising for the foreseeable future.

  2. The delta variant has disproportionately impacted the black/African American unemployment rate, which rose from 8.2% in July to 8.8% in August. The unemployment rate for whites (4.5%), Asians (4.6%), and those of Hispanic or Latino ethnicity (6.4%) declined in August.

  3. The number of Americans not in the labor force declined by 49k in August, bringing the total down from 100.12 million to 100.07 million. This remains well above the February 2020 level of 95.2 million, however. How much of this is attributable to irreversible retirement remains to be seen.

What to Watch

Delta variant, mu variant (look it up), and the pace of recovery from Ida.