America’s employers added just 235,000 jobs in August, a disappointing gain after two months of solid payroll growth – and economists say the spread of the highly contagious delta variant is to blame for the abrupt drop-off.
"The delta variant surge is the unsurprising story behind August’s big payroll miss," said Ryan Detrick, chief market strategist at LPL Financial. "Leisure and hospitality jobs, a proxy for economic reopening, were flat month over month. The good news is that we see promising signs delta’s effect will wane in coming months and payrolls will resume growing at a fast clip."
The August jobs figure the government reported on Friday fell far short of the 728,000 gain forecast by Refinitiv economists, in part because the recent COVID-19 spike forced employers to pull back on hiring. It marked a surprising slowdown after solid gains of 1.1 million in July and 962,000 in June.
The hiring plateau likely reflects both growing fears about the highly contagious delta variant and struggles that companies have reported in onboarding new workers, despite a record number of 10.1 million available jobs. In August, 5.6 million people reported they were unable to work because of the pandemic, a rise from 5.2 million a month earlier.
As coronavirus cases spiked and Americans pulled back on spending, hiring in the leisure and hospitality sector – which includes restaurants, bars and hotels – fell to zero last month.
Though it seems obvious in retrospect, economists likely did not factor in – or underestimated – the number of COVID-19 cases across the nation, and how businesses were responding to the rise.
"Flat growth in leisure and hospitality employment suggests that the delta variant is taking a big bite out of the recovery," said Curt Long, the chief economist and vice president of research at the National Association of Federally-Insured Credit Unions.
While the U.S. was making solid progress with vaccinations – 74.5% of adults have received at least one shot, according to the Centers for Disease Control and Prevention – and infections began falling, cases have rebounded recently as the delta variant spreads among the unvaccinated population.
The U.S. is averaging about 142,000 new daily cases in the last seven days, compared to the 11,000 seven-day average in June, according to the CDC.
"Today's dreadful jobs report -- which basically put the recovery on ice for a while -- is yet another reminder that the virus is the economy. Delta roars and the recovery retreats," Justin Wolfers, an economist at the University of Michigan, tweeted on Friday. "In a few weeks we'll get the geographic detail on the slowdown in jobs growth, and it'll be interesting to see how much more dramatic it is in the Delta-afflicted South."