Wall Street weathers meager jobs report, looking for silver lining

MANHATTAN (CN) — It wasn’t what anybody wanted — an employment report that showed half as many jobs gained as expected — but Wall Street was willing to look past the dark clouds to focus on the silver lining.

The Labor Department’s monthly jobs report failed to make too much of a dent in Wall Street, as two of the three major U.S. indices managed to improve on last week’s gains. By the closing bell, the Nasdaq and S&P 500 both improved on last week’s out, gaining 234 points and 26 points, respectively. The Dow Jones Industrial Average failed to recapture losses from earlier in the week, settling 86 points lower than last Friday’s close.

On Friday, after the Bureau of Labor Statistics reported nonfarm payroll employment increased only by 235,000 jobs last month, investors had turned sour. The report was a big miss for analysts, many of whom had predicted at least a gain of 730,000 jobs.

“Even allowing for the fact that first estimates for August often disappoint on the downside, the extend of the slowdown in jobs growth all but rules out any tapering announcement at this month’s [Federal Open Market Committee] meeting,” wrote Paul Ashworth, Capital Economics’ chief North American economist. “And, if this weakness persists, then it could be pushed into early next year.”

The main weaknesses were among the retail and leisure/hospitality sectors, most analysts found. Leisure and hospitality remained relatively unchanged from July, but the deep gouges in the industry caused by Covid-19 are still there, as the sector remains down 10% since February 2020. The sector previously had showed some resilience, with 415,000 jobs gained in July and nearly 400,000 jobs in June.

As for retail, that sector fell 29,000 jobs last month, mostly driven by losses in food and beverage stores. Retail is down 285,000 jobs since February 2020.

The signs of a slowdown in the jobs market were there to see earlier in the week. Prior to the BLS report, other data hinted at an economic slowdown. The August jobs report from ADP noted a 374,000 gain in nonfarm private-sector employment, a muted gain over July’s 326,000 jobs gain. Large and midsized businesses gained about 140,000 jobs each, but small businesses gained only 86,000 jobs.

Contrary to the BLS report, the ADP report noted 201,000 jobs were gained in the leisure/hospitality sector, while manufacturing gained only 6,000 jobs.

On the unemployment claims front, initial claims once again fell, though not by much. For the week ending August 21, 340,000 new unemployment claims were filed, 14,000 fewer than the prior week. Continuing claims also fell for state programs, by 160,000 to hit 2.7 million during the week of August 21.

Some bright spots were hidden, however, in the BLS data. “The breakdown shows some strength, with manufacturing employment up 37,000,” Ashworth wrote, noting also that private education employment increased by 40,000 last month even while public education employment fell by 26,000. Ashworth also pointed to the 24,000 gain in the motor vehicles sector, which he says suggests “supply shortages could have eased.”

Analysts at Goldman Sachs also were able to see the silver lining. “The details of the report were more encouraging, with 134,000 of upwards revisions to payrolls and declines in the unemployment and underemployment rates,” the team, led by Jan Hatzius, wrote. “Average hourly earnings once again rose sharply among hospitality workers, and the economy-wide pace was also well above expectations.”

Another potential positive out of the report is that the number of job reentrants once again have increased, from 2.4 million in July to 2.5 million in August. The gains mark a continued upward trend in the last several months.

The total jobs gained in June and July were also both revised upward. June’s initial estimate of 938,000 jobs gained was revised to 962,000 jobs, while July’s 943,000 job-increase estimate was pumped up to more than 1 million jobs gained during the month.  

August’s overall jobs numbers, though not too comforting, do seem to support Federal Reserve Chair Jerome Powell’s reticence in moving on its bond-purchasing program or its interest rates, which remain near 0%.

Last week, the Federal Reserve essentially began the countdown for when it would pull out of its bond-buying program, a processing known as tapering. At the Fed’s yearly Jackson Hole symposium, Powell said that, while there has been “clear progress toward maximum employment,” there remained “much ground to cover” to reach the Fed’s threshold before it would start tapering.

Many interpreted Powell’s speech to indicate the Fed would announce tapering during its November meeting, the central bank’s timeline has always been dependent on both inflation and employment.

Some see the lukewarm jobs data as proof the Fed will hold off on announcing tapering later this year or perhaps even early 2022. Others, like Hatzius, feel the latest jobs report won’t effect the Fed’s timeline. “Today’s data was not weak enough, in our view, to derail the timeline for the Fed’s tapering announcement,” he wrote. “We continue to expect a tapering announcement to come at the November meeting, though December or 2022 are also possible in light of the risks posed by the Delta variant.”

During his speech last week, Powell mentioned that the delta variant of Covid-19 “presents a near-term risk” and that Fed has been watching its spread.

Ashworth notes the delta variant is weighing heavily on domestic demand, closing factories and exacerbating the supply shortage. He noted a decline in China manufacturing may portend a similar downturn in the Untied States, triggering “renewed problems in global supply chains [and] adding to the already considerable inflationary pressure on goods prices.”

During a press conference shortly after the report was released, President Biden also blamed the delta variant for the slowdown in job gains. “There’s no question the delta variant is why today’s jobs report isn’t stronger,” he said, noting that next week he will outline future plans to combat the variant and adding states have the ability to extend unemployment benefits.

“We are adding jobs, not losing them,” Biden said. “The fight against Covid today is far different than the fight we were waging last winter.”

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