The labor market data for the month of August was disappointing in terms of the number of new jobs and the lack of progress in labor force participation. The more important data point was the expiration of the enhanced unemployment benefits. Going forward, future payroll reports will include survey periods post the expiration of benefits. This will provide more insight into the impact of the enhanced benefits in preventing strong labor market gains. There are other forces at play that could prevent strong labor market gains if progress remains slow in the coming months (not enough companies have the ability/willingness to add to payrolls or other issues are keeping workers out of the labor market).
Total gains in non-farm payrolls were +235,000 and total private payrolls were +243,000. This was a sizeable decline from the prior months of +900,000-1 million for total and +800,000 for private.
Source: NDR.
The ADP payroll report was slightly better at +374,000. The largest difference between ADP and the private payroll number was the growth in leisure and hospitality. In the ADP report, leisure and hospitality increased by +201,000 but was 0 in the private payroll report. Within the ADP payroll report, the weakest improvement was companies under 20 employees. This could be a sign that smaller, services-oriented companies are having a more difficult time competing for labor.
Source: NDR
Source: FRED.
Source: ADP.
The labor force participation rate has not changed since August 2020. This will be another key data point to monitor post benefit expiration, as this will provide insight into what is holding back hiring (companies or workers).
Source: NDR.
Personal Income and spending data for the month of September will not be available for another two months, so we will need to watch other consumer data, like sentiment. Recently, the results have been mixed as the University of Michigan data has been making multi-year lows, while the weekly data has been increasing. The Conference Board update declined to the same level as February 2021. These surveys have tended to move in the same direction over time, so we believe the divergence should get resolved in the coming months. The direction these surveys move could be a good indication of how other consumer data is likely to trend through the end of 2021.
The post benefit expiration months should provide useful feedback as to what is holding back improvements in the labor market, and this should have some carry over to broad consumer data. We believe this progress will have important ramifications for the overall direction of U.S. economic growth.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Vice President, Investment Strategy
Boyd Watterson Asset Management, LLC