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Weekly Economic & Financial Commentary: Supply Problem Derails August Jobs Report

Summary

United States: Supply Problem Derails August Jobs Report

  • The 235K jobs added in August was about half a million jobs short of expectations. For financial markets, which were hanging on every indication of the labor market as a clue to eventual Fed tapering, this report did not shout “substantial further progress.” Other economic indicators this week were emblematic of the crosscurrents confronting the U.S. economy as it transitions from the vaccine- & stimulus-fueled surge in activity earlier in the year to a yet-to-be-determined new normal.
  • Next week: JOLTS (Wed), PPI (Fri)

International: COVID Shows Up in GDP Data and China PMIs Disappoint

  • Both Canadian and Indian GDP data revealed just how much of an economic impact COVID had in the second quarter of this year. The Canadian economy unexpectedly contracted in Q2 on an annualized basis, while the sharp spike in infections resulted in another significant quarterly contraction in India. COVID restrictions also played a role in uninspiring August PMI data in China.
  • Next week: Reserve Bank of Australia (Tues), Bank of Canada (Wed), European Central Bank (Thurs)

Interest Rate Watch: Summer Doldrums for U.S. Interest Rates

  • Despite plenty of headlines related to COVID, monetary and fiscal policy and incoming economic data, U.S. Treasury yields have moved very little over the past month. The 10-year Treasury yield spent most of the month of August anchored around 1.30%, and despite a disappointing nonfarm payrolls number this morning, the 10-year yield is up a few basis points and currently sits at 1.33%.

Topic of the Week: Hurricane Ida Rains Over the East

  • The cruel indifference of Mother Nature was on full display this week. While much of the West continues to battle droughts and wildfires, Hurricane Ida dumped massive amounts of rainfall on large swathes of the East. The potential negative economic impacts extend to both the local and broader U.S. economy.

U.S. Review

One Ugly Report Does Not Mean the Job Market Is in Trouble

The jobs report for August was a major miss at a critical time. That said, we do not see this as a sign that the job market is in trouble. Like so many things in this pandemic era, this is a supply problem not a demand problem. The NFIB small business survey showed the share of businesses reporting that jobs are hard to fill rose to its highest on record in August. Employers are more than eager to hire, but a variety of factors are keeping would-be workers out of the market. The labor force participation rate did not budge from a still-low 61.7%. It is increasingly a sellers’ market for labor as evidenced by the rising costs for employees: average hourly earnings rose 0.6% in August, which was more than twice the expected monthly gain and lifted the year-over-year rate to 4.3%. Any number of factors could be keeping would-be workers out of the market, from COVID fears and lack of child care to the idea that extended jobless benefits diminish the urgency to find work. Most of these impediments could be removed or diminished by higher pay. For now, the lackluster increase of just 235K makes it very unlikely that the FOMC will announce a taper of its asset purchases at its September 21-22 meeting.

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