Let’s start with a bit of epidemiology. On July 12th, the United States reported 35,383 new cases of COVID-19, according to the Times. A month later, as the Delta variant continued to spread in many parts of the country, the U.S. reported 138,709 new cases. From an economic perspective, these dates are significant, because the Labor Department carries out its monthly survey of employer hiring during the pay period that includes the twelfth of the month. Between the July and the August survey periods, COVID cases shot up nearly fourfold.
On Wall Street, however, most economists took the view that the big resurgence in case numbers wouldn’t have a huge effect on hiring, which had been growing strongly since May as vaccinations became freely available and many COVID restrictions were removed. This time last month, the Labor Department reported that the economy had created nine hundred and forty-three thousand jobs in July. Earlier this week, the consensus estimate for the August figure, which was due to be released on Friday morning, was seven hundred and twenty thousand, according to Dow Jones. The actual number came in at two hundred and thirty-five thousand—less than a third of the consensus prediction. Even allowing for sampling error and other factors that make the month-to-month figures bounce around, this was a big forecasting error, and it seems evident that the Delta variant was to blame for it.
From February to July, total employment in the COVID-sensitive leisure-and-hospitality industry increased by about three hundred and fifty thousand per month. In August, this hiring stopped dead: the industry added zero jobs on net. Although businesses associated with the arts, entertainment (gambling), and recreation added thirty-six thousand jobs, this gain was more than offset by a loss of forty-two thousand jobs in restaurants and bars. The most convincing explanation is that, as the number of COVID cases rose sharply, some people stopped going out, and owners of restaurants and bars reassessed their staffing needs. Such a theory is consistent with OpenTable data for restaurant reservations, which show a significant dip since July. Something similar appears to have happened in the retail industry, where the most recent spending figures—for July—also came in weaker than expected. The jobs report showed that retailers shed twenty-nine thousand jobs last month, with most of the drop concentrated in food and beverage stores.
The upshot of all this is depressingly clear. Despite hopes earlier this year that mass vaccination would finally break the link between the pandemic and the economy, this hasn’t happened—not yet, at least. According to the Labor Department’s monthly survey of households, which is part of the employment report, the number of people saying that they had been unable to work because their employer closed or lost business rose from 5.2 million in July to 5.6 million in August. Yet another sure sign that the Delta variant is biting: the rate of participation in the labor force among women aged twenty and over, which fell sharply in the early months of the pandemic before rebounding somewhat, slipped again last month.
The good news? “There isn’t any,” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, wrote in a circular to his clients this weekend. “September likely will be weak too, and we’re becoming nervous about the prospects for a decent revival in October, given that behavior lags cases, and cases are yet to peak.” This pessimism could turn out to be justified, but it isn’t universal. “The August employment report was very reminiscent of April payrolls, when employment slowed sharply, only to rebound within the next two months,” Aneta Markowska and Thomas Simons, two economists at the investment bank Jefferies, wrote in another analysis out on Friday. “If anything, this one will likely be followed by an even quicker/sharper rebound given the likely influx of labor supply in September.”
Two things we can say for sure are that the average monthly payroll figure for the three-month period from June to August is a robust seven hundred and fifty thousand, and last month’s gain of two hundred and thirty-five thousand was far from trivial; in normal times, it would be considered a healthy figure. Outside the most virus-sensitive sectors, many employers are still hiring. Despite supply-chain problems, the car industry added twenty-four thousand jobs in August; engineering and architectural firms added nineteen thousand; information businesses added seventeen thousand; the financial sector added sixteen thousand. Indeed, the official jobless rate dipped to 5.2 per cent last month, its lowest level since March of last year. These are all reassuring signs that the bottom hasn’t fallen out of the economy, and the gradual recovery from the initial shock of the pandemic is continuing. Indeed, the United States is one of the few countries whose G.D.P. has already rebounded to its pre-pandemic level.
Looking ahead, a key question is how economic policymakers will react to the slowdown in the labor market. In a speech last week, Jerome Powell, the chair of the Federal Reserve, indicated that the central bank is preparing to rein in some of the monetary stimulus it has been providing since the start of the pandemic. Given the weaker jobs figures for August, Powell and his colleagues will surely wait to see the September report, which will be released early next month, before making a final decision.
On the fiscal side, the White House and Democrats on Capitol Hill are now facing renewed pressure to extend the expansion of unemployment benefits, scheduled to lapse this month. The Washington Post’s Jeff Stein reported on Friday that the Biden Administration is split on the issue, with some economic aides concerned that the cutoff of additional benefits “poses a serious danger to millions of Americans who remain out of work,” but the President is supportive of allowing the extra benefits to lapse.
The disappointing jobs report is also sure to figure in the increasingly bitter debate among congressional Democrats about two big spending bills: a bipartisan one, devoted to infrastructure, and a larger Democratic bill designed to bolster the social safety net and promote green energy, which Party leaders hope to pass through the budget-reconciliation process. Earlier this week, Senator Joe Manchin outraged many Democrats when he advocated “a strategic pause” on the reconciliation bill. Shortly after the jobs report was released, Biden called on Congress to “finish the job of passing my economic agenda so that we can keep up the historic momentum we’ve been building these last seven months.”
It will be some weeks before we know the outcome of the spending battles and the Fed’s deliberations. But the slowdown in job growth is a stark reminder of something that Powell made clear a couple of weeks ago in remarks that now seem prescient: “The COVID pandemic is still casting a shadow on economic activity. It is still very much with us. We can’t, you know, we can’t declare victory yet on that.”