CU Economists Look Ahead as Delta Variant Weakens Recovery

CUNA and NAFCU economists said Friday’s weak jobs report reflects the impact the Delta variant is having on businesses as consumers again shy away from activities like eating out, and some people are unable or unwilling to work.

The U.S. Bureau of Labor Statistics reported that the nation gained 235,000 jobs in August after seasonal adjustments, down from 1.6 million a year earlier and 1.1 million in July, a number that was revised up from the 938,000 reported a month ago.

The unemployment rate was 5.2% in August, down from 5.4% in July. The number of unemployed persons fell to 8.4 million, following a large decrease in July. While the number of unemployed and the jobless rate are down from their peak after COVID-19 was declared a pandemic in March 2020, they remain above their pre-pandemic levels of the 3.5% jobless rate and 5.7 million unemployed in February 2020.

Job gains so far this year have averaged 586,000 per month.

Dawit Zenebe, a CUNA senior economist, said the weak job gain in August reflects the impact that the Delta variant has had on the economy.

“The lower-than-expected increase in jobs shows that workers are hesitant to re-join the labor force, even though schools are resuming in-person instruction and federal unemployment benefits will soon lapse,” Zenebe said.

“There is still a critical need among employers to fill vacant positions, which has led to wage increases across the country,” he said.

NAFCU chief economist Curt Long said the low number of new jobs was “a large miss versus expectations.”

“Flat growth in leisure and hospitality employment suggests that the Delta variant is taking a big bite out of the recovery,” Long said. “The number of people working part-time due to slack business conditions plunged by over 1 million combined in June and July, but grew by 200,000 in August.”

Both economists said the weak jobs gain is likely to influence the Federal Reserves’ actions.

Zenebe said it might prompt the Fed to delay its decision to slow down its purchase of Treasury securities and mortgage-backed securities.

Long said the Fed’s Open Market Committee “has already given a soft commitment to taper asset purchases this year, but now more than ever the emphasis will be on decoupling that process from rate hikes which are still a long way off.”

Long also said the weakness in the recovery has been underscored by new car and light truck sales falling from a yearly rate of 14.6 million vehicles in July to 13.1 million vehicles in August. August’s sales were also 14.4% percent lower than in August 2020 or August 2019, and at their lowest rate since June 2020.

“Vehicle sales are getting crushed by the semiconductor shortage and subsequent lack of production,” Long said. “The economy has the momentum and strength to support much higher sales, but there is no supply to meet it.”

Dealer inventories are just one-third their pre-pandemic levels, and manufacturers are allocating their limited chips to their most profitable vehicles, which Long said ”skews sales toward trucks and SUVs.”

“Production will remain an issue into early 2022, at which point sales will begin to strengthen again,” Long said.