Job Growth Stalls on Delta Surge, Giving Fed Cover to Delay Taper
(Updated to add comment from Fed Chairman Jerome Powell in the fifth paragraph.)
The U.S. labor market grew at the slowest pace in seven months in August as a surge of Covid-19 infections stalled hiring, which may provide cover for the Federal Reserve to delay tapering the mortgage bond purchases that have kept home-loan rates near historic lows.
Nonfarm payrolls increased 235,000, the slowest pace since January, according to a Friday report from the Labor Department. That’s a third of the 750,000 gain expected by economists polled by Trading Economics and a quarter of jobs created in July. The unemployment rate fell to 5.2% from 5.4%.
The slow pace of hiring in August could give the Fed a reason to delay its planned withdrawal from the mortgage market, said Lawrence Yun, chief economist with the National Association of Realtors. The Fed has been buying $120 billion a month of Treasuries and mortgage bonds, keeping rates low by increasing competition for the fixed assets.
“The key question is ‘what will the Federal Reserve do?’” Yun said. The policymakers will discuss their plans to begin tapering bond purchases during their next meeting in two weeks, he said.
In a speech last week, Fed Chairman Jerome Powell said policymakers would be watching the August jobs report when deciding when to begin winding down the asset-purchasing program they began in March 2020 to support the economy during the pandemic.
A resurgence of the Covid-19 pandemic as the Delta variant rips through states with low vaccination rates is preventing some Americans from working and causing consumers to stay at home. In August, 5.6 million people said they were unable to work because of Covid-19, the Labor Department said. U.S. payrolls remain 5.3 million below their pre-pandemic level.
“There’s no question the Delta variant is why today’s job report isn’t stronger,” President Joe Biden told reporters on Friday at the White House. “We need to make more progress in fighting the Delta variant of Covid-19. This is a continuing pandemic of the unvaccinated.”
The U.S. economy has struggled to overcome the dampening effects of the pandemic as misinformation on social media and a strong anti-vaccination movement depressed inoculations. With infections surging to record levels in some states, Americans are cutting the consumer spending that accounts for about 75% of the nation’s GDP.
While the U.S. led the world in the development of safe and effective vaccines, it now ranks behind Lithuania, Greece and Luxembourg in the share of residents who are fully vaccinated. About 53% of the U.S. is fully vaccinated, compared with 65% in the U.K., 73% in Spain, and 69% in France, according to the Bloomberg Vaccine Tracker.
The jobs report on Friday revised upward July’s gain in nonfarm payrolls to 1.05 million, showing the strength of the economic recovery before the latest surge of Covid-19 infections overwhelmed hospitals in southern states.
“Prior months’ data were an indication that employers geared up to meet the increasing demand for goods and services,” said Joel Kan, an assistant vice president at Mortgage Bankers Association. “While we still saw employment growth in August, concerns for the continuing spread of the delta variant have started to impact hiring.”
Employment in the service sector, including restaurants and travel, was flat while the construction industry lost workers, driven by a decline in non-residential building jobs, according to the Labor Department report.