Delta Variant Weighs on the U.S. Jobs Recovery | Lord Abbett
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Economic Insights

Lower than expected job growth in August may reinforce caution at the U.S. Federal Reserve on tapering asset purchases

Read time: 1 minute

A report released by the U.S. Bureau of Labor Statistics on September 3 showed that payroll employment gains in the United States slowed sharply in August, and fell way short of expectations, but household employment continued rising robustly and the unemployment rate dropped from 5.4% to 5.2%. Payroll employment rose by 235,000 in August versus an expected increase of 733,000. A net upward revision of 134,000 to job gains in June and July offset about a quarter of the shortfall versus expectations.

The reduction in job growth was a very sharp deceleration from the average gains of 876,000 over the prior three months. However, the slowdown in private sector job creation was almost entirely in two sectors: retail and leisure & hospitality. Job creation in other sectors that account 77% of total employment in the private industries was 272,000 in August, barely below the 296,000 average in the prior three months. Inasmuch as the sectors that slowed sharply in August are highly exposed to infection risk by virtue of forced contact with other people, this suggests that the Delta variant, not slowing demand or supply chain issues, was responsible for slowing the recovery in payroll employment.

Fed Policy Implications

Indeed, there are clear signs that the overall U.S. economic recovery is being restrained by persistent risks to public health posed by the Delta variant. This supports the contention by key U.S. Federal Reserve (Fed) policymakers that the most significant risk to the economy is still the healthcare crisis. Thus, while there are some indications that pressure on inflation and wages has increased, we think Fed policymakers will continue to move very cautiously in removing monetary accommodation. Odds are that tapering of asset purchases will begin, at the earliest, in December and, more likely, not until early 2022, depending on whether infection risk recedes quickly or lingers into coming months.

 

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