As we previewed earlier, while consensus for today's closely-watched payroll print was 725,000, a drop from last month's 943K, the whisper expectation was for a number decidedly lower, with BMO underscoring this point noting that the August NFP print has a seasonal tendency to underwhelm estimates in August, doing so 75% of the time and beating 25% of the time by 18k and 47k, respectively, on average.
And sure enough, moments ago the BLS reported that in August just a paltry 235K jobs were added, far below the 725K expected below even the most pessimistic forecast; the number was not only a huge drop to last month's upward revised 1.053MM but was the weakest print since January.
While we expect that the pundits will quickly blame the resurgence of covid in August, manifesting itself in zero jobs added in leisure and hospitality, with Bloomberg already busy spinning by saying that "the deceleration in hiring likely reflects both growing fears about the rapidly spreading delta variant of Covid-19 and difficulties filling vacant positions" the reality is that the US economy is rapidly slowing even as inflation continues to soar, positioning the US squarely for a stagflationary crash and putting the Fed's tapering plans squarely in doubt.
Relative to expectations, the August print was ugly and represented a 4-sigma miss.
Nonfarm employment has risen by 17.0 million since April 2020 but is down by 5.3 million, or 3.5 percent, from its pre-pandemic level in February 2020.
The change in total nonfarm payroll employment for June was revised up by 24,000, from +938,000 to +962,000, and the change for July was revised up by 110,000, from +943,000 to +1,053,000. With these revisions, employment in June and July combined is 134,000 higher than previously reported. Still, the August miss was so big to easily wipe out any benefits from this spike.
Yet, as before, while the Establishment survey was a mess, the Household Survey was much better, and showed that employment actually rose by 509,000 to 153.154 million, although few actually pay attention to this.
Meanwhile, and as discussed more below, the weakness on the establishment survey side was concentrated in leisure and hospitality. The rate of hiring in most of the other service sectors was not too dissimilar in August from July. Here’s a quick rundown:
- trade, transportation and utilities: +24k (versus +61k in July)
- information: +17k (versus +21k)
- financial activities: +16k (versus +24k)
- professional and business services: +74k (versus +79k)
- education and health services: +35k (versus +88k)
- other services: +37k (versus +46k)
There were less fireworks in the unemployment rate, which came in at 5.2%, in line with expectations and down from 5.4% last month. Of note: black unemployment jumped. This is because while the Civilian labor force was effectively flat, rising from 161.3MM in July to 161.5MM in August, the number of Unemployed declined from 8.702 million to 8.384 million.
The labor participation rate was also mostly in line, unchanged from last month at 61.7% and just missing the 61.8% consensus.
Meanwhile, as the economy slows (as a reminder, Morgan Stanley slashed its Q3 GDP to just above 2% yesterday), inflation keeps rising and will continue to rise thanks to another jump in average hourly wages which rose from 4.1% Y/Y last month to 4.3%, smashing the 3.9% consensus. On a sequential basis, wages rose 0.6%, double the 0.3% forecast and well above July's 0.4% increase.
The jump in wages and the flat labor participation rate suggest that the shortfall in payroll gains is due to lack of supply of workers. People just still aren’t ready to go snap up the jobs that are on offer. But all that will change next week when all extended benefits expire...
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Drilling into the data, notable job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services, while employment in retail trade declined over the month. Most notably, leisure and hospitality jobs were unchanged on the month, while food services and drinking places jobs actually declined by 42,000. Yes, we actually lost waiters and bartenders.
Some more details:
- Employment in professional and business services increased by 74,000 in August. Employment rose in architectural and engineering services (+19,000), computer systems design and related services (+10,000), scientific research and development services (+7,000), and office administrative services (+6,000). Since February 2020, employment in professional and business services is down by 468,000, over half of which is in temporary help services (-262,000).
- Transportation and warehousing added 53,000 jobs in August, bringing employment in the industry slightly above (+22,000) its pre-pandemic level in February 2020. Employment gains have been led by strong growth in couriers and messengers and in warehousing and storage, which added 20,000 jobs each in August. Air transportation also added jobs (+11,000), while transit and ground passenger transportation--which includes school buses--lost jobs (-8,000).
- In August, employment increased by 40,000 in private education, declined by 21,000 in state government education, and changed little in local government education (-6,000). In all three industries, these employment changes followed job gains in June and July. August marks the beginning of the traditional back-to-school season. However, recent employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns. Since February 2020, employment is down by 159,000 in private education, by 186,000 in state government education, and by 220,000 in local government education.
- Manufacturing added 37,000 jobs in August, with gains in motor vehicles and parts (+24,000) and fabricated metal products (+7,000). Employment in manufacturing is down by 378,000 from its pre-pandemic level in February 2020.
- The other services industry added 37,000 jobs in August, but employment is 189,000 lower than in February 2020. In August, employment rose in personal and laundry services (+19,000) and in repair and maintenance (+9,000).
- Employment in information increased by 17,000 in August, reflecting a gain in data processing, hosting, and related services (+12,000). Employment in information is down by 150,000 since February 2020.
- Employment in financial activities rose by 16,000 over the month, with most of the gain occurring in real estate (+11,000). Employment in financial activities is down by 29,000 since February 2020.
- Mining added 6,000 jobs in August, reflecting a gain in support activities for mining (+4,000). Mining employment has risen by 55,000 since a trough in August 2020 but is 96,000 below a peak in January 2019.
- Employment in retail trade declined by 29,000 in August, with losses in food and beverage stores (-23,000) and in building material and garden supply stores (-13,000). Retail trade employment is down by 285,000 since February 2020.
- In August, employment in leisure and hospitality was unchanged, after increasing by an average of 350,000 per month over the prior 6 months. In August, a job gain in arts, entertainment, and recreation (+36,000) was more than offset by a loss in food services and drinking places (-42,000). Employment in leisure and hospitality is down by 1.7 million, or 10.0 percent, since February 2020.
Carl Riccadonna, Bloomberg Intelligence’s chief industry economist, said the significant disappointment on nonfarm payrolls - falling well short of even the most pessimistic forecast included in Bloomberg consensus -- creates meaningful uncertainty around the potential timeline of Fed tapering.
“If this pace of hiring continues, the Fed’s ‘substantial further progress’ threshold won’t be satisfied in the minds of doves and moderates on the FOMC along the timeline laid out at Jackson Hole,” he says. “If the QE taper timeline is shifting, this will have material consequences for stocks, money markets and FX.”
As Bloomberg's Kriti Gupta writes, there isn’t much the Fed is likely to do after this "beyond sit back, relax and watch for more data. It’s clear the market has turned slightly defensive off the headlines, but those moves are getting reversed. To me, on the surface, this looks like a tug of war over whether the market is interpreting bad economic news as positive news for the market or vice versa."
Some more kneejerk commentary, this time from BBG's Ira Jersey:
“The disappointing payrolls report may bring additional fiscal stimulus. Historically, additional supply has little immediate affect on rates. The Treasury Department may not reduce coupon note and bond issuance at its November refunding announcement as much as some strategists had forecast.”
“Although we don’t think this disappointing data changes the timing of a Fed taper, it should help to convince the market that an early interest rate hike is less likely. We think the uneven recovery will cause the Fed to maintain a cautious tone well into 2023.”
And another take on what this report means for the taper from TD's Priya Misra:
"We think tapering is still very much on the table, but we’re calling for a December taper not a September taper. November’s possible if the next couple of reports are very strong."
While the jobs report was terrible news for the economy, it will be great news for Democratic lawmakers who are pressing for a $3.5 trillion fiscal package and will certainly use today’s report as evidence that the damage from the pandemic is going to linger for quite some time, so hard-pressed families are going to need the kind of health-care and child-care support offered in that package.
But while Democrats will be delighted, the jobs report was certainly bad news for President Joe Biden. As Bloomberg notes...
Biden has had the uproar over the way the Afghanistan withdrawal was handled, setbacks at the Supreme Court, key Democratic Senator Joe Manchin threatening progress on his $3.5 trillion social-spending package, and now the jobs rebound is sputtering. Republicans are doubtless going to argue that the weakening in employment growth is further evidence of excess government support that reduces the incentive for people to take up work.
Bottom line: the number was so bad, it will soon be spun as good for the economy because not only is the taper now in question, but we actually got this headline from Bloomberg: "Disappointing U.S. Jobs Report May Bring More Stimulus." Because only MOAR QE can fix this absolute shitshow the US economy and fake market find themselves in...