But Unemployment Rate Down
- Job growth was softer than expected in August at 235,000, but there were upward revisions to job growth in June and July.
- The unemployment rate dropped to 5.2% in August, from 5.4% in July.
- After huge gains in recent months leisure/hospitality services employment was flat in August, likely due to the delta variant and hiring difficulties.
- PNC expects average monthly job growth of around 650,000 through the rest of this year, with employment back to its pre-pandemic level in the spring.
The U.S. economy added just 235,000 jobs in August, according to a survey of employers, well below the consensus expectation of 750,000. This was the weakest month for job growth since January 2021, and well below the recent pace. Job growth was revised higher in June, to 962,000 from 938,000, and in July, to 1.053 million from 943,000, for a total upward revision of 134,000. The private sector added 243,000 jobs in August, while government employment fell by 8,000. Despite the slowing in August, the three-month moving average of job growth was still very strong at 750,000.
Employment fell by 22 million in March and April of last year as the pandemic came to the U.S., but has steadily claimed higher since then. Still, employment in August was 5.3 million (3.5%) below its pre-recession peak.
The unemployment rate fell by 0.2 percentage point in August to 5.2%. This is the lowest the unemployment rate has been since the pandemic came to the United States but is still above the 3.5% pre-pandemic rate. The unemployment rate soared to 14.8% in April 2020 but has been steadily falling since. Employment in a survey of households (different from the survey of employers) increased by 509,000 in August. The labor force increased by a disappointing 190,000 in August, with the labor force participation rate flat at 61.7%. The labor force participation rate was 63.3% in February 2020 and then plunged to 60.2% in April of last year. It increased in mid-2020, but has been roughly flat since then, stuck between 61% and 62%. This means that there are millions of Americans who lost their jobs during the pandemic and have stopped looking for work.
Private service-providing industries added 203,000 jobs in August, well below the recent pace. Employment in leisure/hospitality services was unchanged over the month; this followed six months of average monthly job gains of better than 300,000. The drop in job growth in the industry was likely due to a combination of lower demand because of the spread of the delta variant and continued difficulties in finding workers. Employment rose by 74,000 in professional/business services in August, by 53,000 in transportation and warehousing, and by 35,000 in education/health services. Employment fell by 29,000 in retail trade over the month; here again, the delta variant and worker shortages may have played roles. Employment in goods-producing industries rose by 40,000 in August, including an increase of 37,000 in manufacturing and a decline of 3,000 in construction. The drop in government employment was led by a decline of 21,000 in state education jobs, likely due to a delayed start at some colleges.
Average hourly earnings rose 0.6% over the month. Wage growth has been strong in recent months as businesses compete for workers. The average workweek was unchanged at 34.7. With more jobs, higher wages, and an unchanged workweek, aggregate pay increased by 0.8% in August. This is well above the inflation for the month-the CPI for August was likely up 0.4% (to be released on September 14).
The August jobs report was disappointing. A number of factors likely weighed on job growth over the month, including the delta variant, difficulties in finding workers, some payback after very strong job gains in June and July, and seasonal adjustment issues. Even with the weaker August number, however, job growth over the past three months has been a very strong 750,000.
The next few months will be a transition period for the labor market. Underlying demand for labor remains strong, but the delta variant could start to weigh on that. The labor supply remains constrained, with the labor force participation rate still far below its pre-pandemic level. PNC expects labor force growth to pick up through the rest of this year. Some of that will come from parents returning to the workforce as in-person schooling returns, and some from reductions in eligibility for and the generosity of unemployment insurance benefits-expanded and extended benefits expire in a few days. But continued concerns about the pandemic could prevent some people from returning the workforce. If they don’t, that would restrain job growth going forward.
Despite the slowdown in August, PNC expects job growth to average around 650,000 per month through rest of 2021 and into 2022, near its current pace. Stronger labor force growth through the rest of this year will allow the economy to maintain this pace of job growth. Employment should be back to its pre-recession level in the spring of 2022. The unemployment rate will continue to decline, ending this year slightly below 5% and next year at around 4%. Risks to the labor market are to the downside, however, including the delta variant, continued supply-chain problems, and weaker-than-expected labor force growth that could constrain hiring.
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