Nonfarm Payrolls August 2021

Tap the brakes! August nonfarm payrolls came in at an underwhelming 235,000. Government payrolls shed 8,000 jobs, while the private sector added a mere 243,000. In a different time this would be considered a decent if not a good report, but given the amount of support in place to bolster the US economy (via a powerful combination of fiscal and monetary policy), this is a rather disappointing print. Certainly, much of the weakness can be chalked up to “uncertainty”… uncertainty stemming from-- you guessed it— the coronavirus and its potent delta variant. Unemployment remains elevated though U6 did finally break below 9%. Those in the workplace are reporting substantial wage gains with August hourly earnings up 4.3% YoY. Meanwhile, the average workweek ticked down modestly to 34.7 hours and labor force participation remains mired at 61.7%. On the bright side BLS did restate figures from its two prior employment reports, adding an extra 134,000 jobs, but August’s data indicate that we are certainly getting our first glimpse of the impact of the delta variant on American spending and hiring activity.  

Wednesday morning ADP’s National Employment Report signaled some summer softening in America’s labor market. According to the report, private payrolls accumulated a total of 704,000 new hires in July and August-- well off the pace reflected in data released by the Washington-based Bureau of Labor Statistics (>1M). To be sure, American employers are still hiring, and there is no shortage of demand for workers (JOLT’s recently surpassed 10M!). However, the velocity of private payroll expansion is slowing a bit. Despite mixed signals regarding the speed of the jobs recovery, both ADP and the BLS seem to agree that the vast majority of summer hiring activity took place in leisure and hospitality and education. As an aside, ADP’s August report showed a significant boost in construction payrolls, which is great to see at this stage of the recovery. However, recent data show only a modest uptick in actual construction spending (0.1% MoM)... you can’t always get what you want.

Elsewhere in the US economy, we are looking at a solid if not unspectacular picture. The Institute of Supply Management’s manufacturing activity gauge fell slightly to 59.5 last month, though services picked up the slack and then some. In fact, ISM’s non-manufacturing PMI officially came in at 64.1, which happens to be its best reading since early April. Meanwhile, the great inflation debate goes on as Core PPI and CPI ratcheted higher last month. Interestingly, August data indicate a divergence emerging with producer prices increasing 1.0% MoM, while core inflationary pressures at the consumer level increased a fraction of that amount (0.3% MoM). Are we beginning to see the “transitory” nature of this inflationary spike or is this “blip” more attributable to the emergence of the delta variant as a hindrance to job creation and consumer spending? On that note, personal spending (0.3% MoM) and retail sales (-1.1% MoM) continue to be soft spots in this recovery. Cue Jay Powell and his cohorts at the Federal Reserve…

August brought the much heralded and anticipated Jackson Hole central bank conclave (courtesy of the Federal Reserve Bank of Kansas City). Of course, the format was reengineered at the last minute to accommodate delta variant concerns. As a result, Mr. Powell delivered his comments and addressed his eager audience remotely rather than in person. The big takeaway is that the Fed feels its inflationary goals have largely been achieved (#notasurprise!), but significant challenges remain with respect to the labor market. So, reducing asset purchases is very much on the table, though the timing of said tapering is an open question at this stage. The Fed chairman was also quick to note that any reduction of purchases DOES NOT imply any sort of timetable regarding interest rate liftoff. So, markets will continue to grapple with short term rates at the “zero bound” for the foreseeable future (#notasurprise!!). Let’s keep an eye on those employment metrics and see what kind of labor market slack the delta variant brings!     

Market Outlook: Neutral USD, Neutral Duration, Neutral Equities

News Release: Bureau of Labor Statistics (The Employment Situation- August 2021)