Economy adds just 235K jobs in August as delta hammers growth

The U.S. added 235,000 jobs in August and the unemployment rate fell to 5.2 percent as the economy appeared to falter under surging coronavirus cases, according to data released Friday by the Labor Department.

Economists had expected employment growth to slow slightly in August to a gain of roughly 750,000 jobs, according to consensus forecasts, amid falling consumer confidence and disruptive school closures. Declines in restaurant reservations, air travel and other key drivers of the recovery also raised red flags about the August jobs haul.

“Today’s report has the delta variant written all over it. It is clear that the recent surge in COVID-19 cases is a strong headwind to the labor market,” wrote Nick Bunker, economic research director at Indeed.

The August jobs report showed setbacks in sectors of the economy hit hardest by the pandemic and crucial to the comeback from its economic blow.

The leisure and hospitality sector did not add any net jobs in August as a 42,000-job decline in restaurants and bars wiped out a 36,000-job gain in arts and entertainment. 

Stagnant job growth in leisure and hospitality, one of the areas of the economy most vulnerable to COVID-19, is an alarming sign for the pace of the recovery. The sector added an average of 350,000 jobs per month since February and remains down by 1.7 million from its peak in 2020, the Labor Department said.

Employment in retail, another hard-hit sector, also fell by 29,000 thanks to steep losses at grocery stores and building material and garden supply stores. 

Instead, the bulk of the August jobs gain came from professional and business services (74,000), transportation and warehousing (53,000), manufacturing (37,000) and private education (40,000).

“The industry breakdown in employment growth shows clear signs that the increased COVID-19 spread is behind this relatively weak number,” Bunker wrote. “Yet, the labor market is still recovering.”

While job growth slowed significantly in August, the first full month since the delta surge picked up in mid-July, the labor market still showed signs of resilience.

Labor force participation stayed even at 61.7 percent in August and the employment to population ratio — a broader gauge of job market strength — ticked up 0.1 percentage points to 58.5 percent. 

The unemployment rate for whites dropped from 4.8 percent to 4.5 percent as labor force participation stayed even, showing continued progress. Black unemployment jumped from 8.2 percent to 8.8 percent, though participation also jumped up by 0.8 percentage points. 

The Hispanic unemployment rate fell from 6.6 percent to 6.4 percent with a small decline in participation, but the Asian unemployment rate dropped from 5.3 percent to 4.6 percent likely due to a 0.4 percentage-point decline in participation. 

The number of Americans who have been jobless for 27 weeks or longer, known as the “long-term unemployed,” also dropped from 3.4 million to roughly 3.2 million. Those who suffer long-term unemployment often struggle to return to work and are hired at lower rates than those without long periods of joblessness.

Upward revisions to June and July’s blockbuster jobs gains was another positive sign for the economy. June’s job haul was revised up from 938,000 to 962,000, and July’s was revised up from 943,000 to 1,053,000 — the first seven-digit job gain since August 2020.  

“The underlying momentum is still there. We just have to see if we can keep up the pace until this surge is behind us,” Bunker said.

Even so, the steep drop in job growth is sure to raise alarms about the strength of the U.S. economy and boost political pressure on President Biden.

Biden is grasping to regain political momentum as surging COVID-19 cases, the fallout from the end of the war in Afghanistan, and rising prices weigh on his approval ratings. 

The president is also attempting to keep fractious congressional Democrats unified behind an ambitious infrastructure, climate and social services spending push while also racing against a Sept. 30 deadline to fund the government. Biden and Democrats must also find a way to raise the federal debt limit before the U.S. defaults, potentially without GOP support.

“New government restrictions, continuing anti-work incentives, and declining consumer confidence are hindering our ability to fully recover,” said Sen. Mike Lee (R-Utah), vice chairman of the Joint Economic Committee.

“I am confident in the capacity of the American people to overcome any challenge, and I strongly caution against reinstituting government policies that move us backwards at a critical time.”

Rep. Don Beyer (D-Va.), the chairman of the Joint Economic Committee, countered that the August slowdown reinforced the need to crack down on COVID-19 and go bold with ambitious economic plans.

“Today’s jobs numbers remind us that economic recovery hinges on controlling the spread of the coronavirus. Recovering from the worst economic crisis since the Great Depression will not be without its challenges, and with strong leadership, we can continue to rise to meet them,” Beyer said in a statement.

Updated at 9:46 a.m.