From Wall Street to Washington, everyone seems to expect another big gain in the number of new U.S. jobs created in August. But what if hiring turns out to be a dud?
Truth is, it probably doesn’t matter.
Oh, sure, it could delay for a month or two the Federal Reserve’s long-anticipated process of unwinding its easy money policies introduced last year to aid the economy during the worst of the pandemic. But it doesn’t alter the bigger picture. The Fed and most investors are convinced the U.S. is on a path to full recovery.
How come? By almost every measure, the labor market is on fire. Consider:
The U.S. has created an average of 831,000 new jobs in each of the past three months. The official unemployment rate has fallen to 5.4% from 6.1%. And job openings recently topped a record 10 million for the first time.
“The past three months we’ve have robust gains on hiring,” said senior economist Sam Bullard at Wells Fargo. “Clearly labor demand is still very strong.”
Ergo, a strong labor market equals a strong recovery.
“Before the pandemic, we all saw the extraordinary benefits that a strong labor market can deliver to our society. Despite today’s challenges, the economy is on a path to just such a labor market,” Fed Chairman Jerome Powell said Friday.
In August, economists predict the U.S, likely added almost 800,000 new jobs. It’s the centerpiece of this coming week’s calendar which is chockfull of important reports on the economy.
The biggest problem companies face in trying to fill jobs is getting people to apply for them. Most businesses want to hire, but millions of people who lost jobs and left the labor force early in the pandemic haven’t returned.
and Washington expect most of these people to go back to work later this year — or next — regardless of what happens in August.
For one thing, virtually all schools plan to reopen for children in the fall. That will allow parents to work outside the home during the day instead of taking care their kids.
What’s more, a federal program that provides extra unemployment benefits is set to run out on Sept. 6. Several million people who will lose benefits are expected to start looking for work in the near future as their savings dwindle.
The Biden administration has left the door open for states to use other federal stimulus money to keep paying these benefits, but most states are not expected to so do. Half of the states actually cut off extra benefits early.
That’s why the August employment report won’t be a game changer.
The report still matters, of course. The delta variant of the coronavirus surged in many states in August and may have caused service-oriented businesses such as restaurants and entertainment venues to hire fewer people. Evidence suggests people were more skittish about being in large crowds.
Service providers have added an average of 640,000 jobs a month since May. If hiring falls sharply, it will be viewed as sign that delta did more damage to the economy in August than other evidence suggests.
The labor-force participation rate could be another warning flag if it declines in August, said chief economist Richard Moody of Regions Financial. It’s basically been stuck around 61.7% for the past year — almost two points below its precrisis peak.
It might not sound like a big deal, but it means millions of people are missing from the labor force. As many as 9 million more people would be working right now, economists estimate, if the pandemic had never happened at all.
Even a disappointing jobs report, however, would only delay by a month or two the Fed’s plans to taper, Moody acknowledged. The Fed is buying $120 billion in Treasurys and mortgage-backed securities each month to keep interest rates low.
The central bank is widely expected to start cutting back on those purchases before the end of 2021. A poor August report might “flip the time line [for tapering] from October to November,” Moody said.