August Jobs Report: What to Expect

Wall Street is getting ready for another jobs report this week, as it prepares to figure out whether the economic recovery from the pandemic is gaining momentum or stalling out.

On Friday, the U.S. Bureau of Labor Statistics will release the August nonfarm payrolls report. That’s the results of a monthly survey sent to business establishments around the U.S., trying to find the net number of jobs the economy created each month. Job creation is vital for every economy, as it is closely connected to income growth and consumer spending that drive GDP growth.

Job Growth Expected to Slow

Markets expect the U.S. economy to have created somewhere between 650,000 and 750,000 jobs in August, according to two forecasts published by Tradingeconomics.com. That’s well below the 943,000 jobs the economy created in July and the 938,000 generated in June.

If forecasters turn out to be correct, the August report will confirm that the job creation is slowing down, which doesn’t bode well for the pace of economic recovery.

As discussed in previous pieces, job growth has been held back by the resurgence of COVID-19 infections and the persistence of structural impediments in the labor market, like generous government benefits that held people back from returning to work.

Unemployment is Expected to Edge Lower

On Friday, the Bureau of Labor Statistics will release another report, the August unemployment rate. That’s the percentage of the labor force that’s without a job but actively looking for one. It’s derived from another survey, which is sent to households every month to determine their labor status.

Markets expect the August unemployment to be somewhere between 5.2 and 5.3 percent, slightly below 5.4 percent in July. These numbers are well below the pandemic numbers but still above the levels from before the spread of coronavirus.

If August unemployment comes out as expected, it will weaken the link between job growth and unemployment. That’s due to a drop in labor force participation, from 63.1% in early 2020 to 61.7% in July of 2021.

The Fed Will be Watching

The nonfarm payrolls and unemployment reports are followed closely by the nation’s central bank. The bank uses them to determine how close or far the American economy is from high or full employment. That’s one of the two mandates assigned to the central banks by the U.S. Congress, the other being stable prices.

In his Jackson Hole speech last week, Fed Chairman Jerome H. Powell stated that thanks to the economic recovery, the U.S. economy has made a great deal of progress towards achieving its employment mandate, but it isn’t there yet.

Here’s a quote from the Fed’s speech:

“The outlook for the labor market has brightened considerably in recent months. After faltering last winter, job gains have risen steadily over the course of this year and now average 832,000 over the past three months, of which almost 800,000 have been in services. The pace of total hiring is faster than at any time in the recorded data before the pandemic. The levels of job openings and quits are at record highs, and employers report that they cannot fill jobs fast enough to meet returning demand.”

“With vaccinations rising, schools reopening, and enhanced unemployment benefits ending, some factors that may be holding back job seekers are likely fading. While the Delta variant presents a near-term risk, the prospects are good for continued progress toward maximum employment.”

The Fed chair has repeatedly reiterated his view that the pace of job growth is a key factor in setting the timing and the pace of tapering. Tapering refers to the rolling back of its bond-buying program, a key driver behind investor appetite for risk assets, stocks, junk bonds, cryptocurrencies, etc.

That’s why Wall Street will follow this statistic closely, too.

Summary and Conclusions

The U.S. nonfarm payrolls and unemployment reports, released the first Friday of every month, is news for Wall Street, as they set the pace of monetary policy, a key factor in asset allocation. The August reports that are coming out this week aren’t an exemption to this rule. Market forecasters expect the job growth to stall in August with the unemployment rate edging lower, supporting the Fed’s middle road to monetary policy.

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