Wall Street strategists mostly agree that the worse-than-expected August jobs report wasn’t just a mild setback for the COVID-19 economic recovery, it was a major setback that warrants closer attention by investors.
“A major speed bump,” is how Bank of America economists summed up the report in a flash note to clients on Friday. “There are clear signs that the recent [surge] in the Delta variant played a key role in the weakness in the labor market.”
The U.S. economy added back the fewest jobs since January last month as the Delta variant took a greater than expected toll. Non-farm payrolls increased by 235,000 in August after rising by more than 1 million in July, the Labor Department said Friday. Economists were looking for 733,000, according to Bloomberg consensus data. The report comes on the heels of disappointing reads on consumer confidence in retail sales, which strategists blame on the influence of the Delta variant on mobility and psyche.
By industry group, the U.S. services sector was a major contributor to the disappointing headline payroll print. Leisure and hospitality employers added back a net zero jobs in August after adding more than 400,000 in July. Manufacturing jobs, however, were a bright spot, with 37,000 of these returning to build on a gain of 52,000 from July.
“One of the biggest areas of decline — if you can call it that — from the jobs report was hospitality and leisure. You can see a correlation to the Delta variant right there with that,” U.S. Labor Secretary Marty Walsh on Yahoo Finance Live told Yahoo Finance Live.
Investors initially appeared confused by the jobs miss. On the one hand, the report likely delays a Federal Reserve tapering (usually a good thing for stocks) until later in the year. Although on the other hand, the bad headline miss suggests a stalled economic recovery that doesn’t warrant for record high stock valuations.
“This [report] supports our view that the Fed will not announce taper at the upcoming September meeting. But it does still leave the Fed to provide additional guidance regarding the taper timeline, contingent on the data improving and getting past the recent weakening due to Delta. We still think a November taper announcement is in play but provided that the data bounce and the weakness, mostly due to Delta, proves temporary,” Bank of America’s team wrote.
By early afternoon trading, a more bearish vibe enveloped red-hot markets with the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 all in the red.
“It [the jobs report] could be a rally ruiner,” said Steve Sosnick, Interactive Brokers chief markets strategist, on Yahoo Finance Live.
Yahoo Finance’s Emily McCormick contributed to this story.