Economic Commentary – Delta variant trips streak of strong job gains

Our outlook is for above-trend economic growth – peak economic growth doesn’t mean weak growth.

Michael Skordeles, AIF®

Senior U.S. Macro Strategist

Truist Advisory Services, Inc.

Executive Summary

U.S. payrolls in August rose by 235,000, missing the consensus expectation of 745,000. The unemployment rate continued to decline, falling to 5.2%.

The key difference was the absence of improvement within the reopening sectors. Leisure & hospitality was unchanged in August, while education lost jobs and tipped government into negative for the month. Both of these were likely related to seasonal adjustments.

Nonetheless, the August job report was not weak, but there was clearly a downshift from the robust summer momentum that average 876,000 from May through July. Welcome to the next phase of the jobs recovery, marked by solid—albeit smaller—monthly job gains. Ultimately, this report supports our outlook for above-trend economic growth and our belief that peak economic growth does not mean weak growth.

Being data dependent, this likely means the Federal Reserve (Fed) will await more data to ensure the August downshift was an anomaly. That pushes back the start of tapering a month or two, with an announcement perhaps at the November meeting.

A review of the major industry trends

Private payrolls in August increased by 243,000 workers, down from roughly 800,000 in both June and July. Governments lost jobs, which were entirely educational positions. Service-providing industries added 230,000 positions, while goods producers chipped in 40,000 workers, maintaining its three-month average.

"Three major industries lost jobs during August."

Private payrolls in July increased by 703,000 workers, down from 769,000 in June, but governments hired 240,000, which were mostly educational positions. Service-providing industries added 659,000 positions, while goods producers chipped in 44,000 workers.

The two segments—leisure & hospitality and education—most impacted by the pandemic continue to see the largest increases.

Delta variant trips streak of strong job gains

The key difference was the absence of improvement within the reopening sectors, as leisure & hospitality and education drove roughly two-thirds of the gains during the May through July period. Both lost jobs in August, but these were likely related to seasonal adjustments.

In August, leisure & hospitality was unchanged. Payrolls at amusement, gambling, and recreational facilities increased by 30,000 workers, while hotels added 6,600, along with gains within performing arts and sports. But restaurants and bars lost 41,500.

Meanwhile, public education lost jobs and tipped government into negative for the month. Excluding education, governments added 18,000 workers in August.

Interestingly, private education—categorized within education & health services—added 40,200 in August. It was the fourth consecutive month adding more than 33,000 jobs.

Construction lost jobs for the fourth time in five months. The bulk of the losses were within commercial construction and heavy & civil engineering firms.

We reiterate our caution that the industry-level results will remain choppy month to month in the near term, reflecting the unevenness of the global recovery and renewed localized restrictions in parts of the U.S., particularly in Delta variant hotspot states.

Bottom line

We anticipate that the next phase of the jobs recovery will continue to unfold over the next few months, marked with solid monthly gains, though they will be smaller in size and likely choppy on a month-to-month basis due to several cross-currents.

Ultimately, this report supports our outlook for above-trend economic growth and our belief that peak economic growth does not mean weak growth.

Being data dependent, this report likely will cause the Fed to await more data (to ensure this weakness was an anomaly). It pushes back the start of tapering a month or two, with an announcement perhaps at the November meeting.

To read the publication in its entirety, please select "Download PDF," below.

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