U.S. job growth slows sharply in August, unemployment rate falls to 5.2%

Job growth in the U.S. has slowed in August more than expected amid sluggish demand for the service industry and persistent labor shortages as new COVID-19 cases soared.

Last month, the economy added 235,000 nonfarm jobs after surging 1.053 million in July, the Labor Department reported on Friday. The Dow Jones was expecting 720,000 new jobs creation for August.

The unemployment rate fell to 5.2% from 5.4% in July, in line with the expectation.

The payroll data for August has been slower than the three-month average job growth through July over the last several years, including in 2020 and is the worst since January.

The weaker-than-expected job report came at a time when economists have been sharply marking down their GDP estimates for the third quarter, citing the resurgence in COVID-19 cases driven by the Delta variant, coupled with raw materials shortage.

The job data could also cloud the Federal Reserve policy, weighing whether to pull back on the massive stimulus, which was introduced since the outbreak in early 2020.

“The labor market recovery hit the brakes this month with a dramatic showdown in all industries,” Daniel Zhao, senior economist at jobs site Glassdoor, told CNBC. “Ultimately, the Delta variant wave is a harsh reminder that the pandemic is still in the driver’s seat, and it controls our economic future.”

After adding an average of 350,000 jobs per month for the past six months, the leisure and hospitality industry jobs stalled in August as the unemployment rate in the sector marked higher to 9.1%, mainly due to a loss in employment in food and drink services places.

However, jobs in professional and business services led the report by adding 74,000 new positions, followed by transportation and warehousing, private education and manufacturing and other services.

The data showed the number of jobs is still well below the pre-pandemic levels, with 5.6 million persons reported that they had been unable to work due to COVID-19.

The employment-to-population ratio, which gauges the total jobholders against the working-age population, stood at 58.5% in August, which went up one-tenth of a percentage point from July but still well below the 61.1% pre-pandemic level.

On Thursday, the labor department said that the number of new claims for unemployment benefits fell in the last week of August to their lowest levels since March 2020, suggesting the labor market is gradually improving although new COVID-19 infections are surging.

However, both the data is indicating that there is still a significant employment gap in the economy.

In recent weeks, Fed officials have expressed optimism about the employment picture but said they would monitor the entire scenario before changing course.

However, if the jobs data gets even softer in the coming months, it could prompt the Federal Reserve to wait until 2022 before tapering the bond-buying program.

Picture Credit: The Corner