The US economy added fewer jobs than expected in August, according to a report by ADP, a payroll processing company. The report showed that private employers added 177,000 jobs last month, well below the revised total of 371,000 jobs added in July. Economists surveyed by Dow Jones were expecting 200,000 jobs added in August.
ADP Report Highlights the Challenges Facing the Labor Market
The ADP report is one of the indicators of the health of the labor market, which has been recovering from the pandemic-induced recession. However, the report also highlighted some of the challenges facing the labor market, such as labor shortages, rising costs, and the spread of the Delta variant of Covid-19.
According to Nela Richardson, chief economist at ADP, the slowdown in job growth was consistent with the pace of job creation before the pandemic. She said that after two years of exceptional gains tied to the recovery, the economy was moving toward more sustainable growth in pay and employment as the effects of the pandemic recede.
However, she also noted that some sectors were still struggling to find workers, especially in leisure and hospitality, education and health services, and trade and transportation. She said that these sectors were facing a mismatch between supply and demand of labor, as well as rising costs and uncertainty due to the Delta variant.
ADP Report May Not Reflect the Full Picture of the Labor Market
The ADP report is not always a reliable predictor of the official jobs report by the Bureau of Labor Statistics (BLS), which is due out on Friday. The BLS report covers both private and public sector employment and often differs from the ADP report in terms of magnitude and direction.
For example, in July, the ADP report showed that private employers added 330,000 jobs, while the BLS report showed that they added 703,000 jobs. The BLS report also showed that the unemployment rate fell to 3.5% in July, matching the lowest level since 1969.
Economists expect that the BLS report will show that the economy added 750,000 jobs in August and that the unemployment rate fell to 3.4%. However, some analysts have lowered their expectations after the disappointing ADP report and other signs of slowing economic activity.
US Economy Faces Headwinds from Inflation and Delta Variant
The US economy has been growing faster than many expected in 2023, thanks to the vaccination campaign, fiscal stimulus, and pent-up consumer demand. However, it also faces some headwinds from rising inflation and the Delta variant.
The Federal Reserve has been raising interest rates to keep inflation under control and to prevent overheating of the economy. The Fed hiked rates to the highest level in 22 years in July and signaled that it was ready to raise them further this year. The Fed Chair Jerome Powell said last week that the central bank was also preparing to taper its bond-buying program, which has been supporting the financial markets since the pandemic.
However, some economists worry that tightening monetary policy too soon or too fast could hurt the economic recovery and dampen consumer confidence. Consumer confidence fell sharply in August to its lowest level since May, according to a survey by The Conference Board. The survey showed that consumers were concerned about rising prices, declining income prospects, and worsening business conditions.
The Delta variant has also posed a threat to the economic recovery by causing a surge in Covid-19 cases and hospitalizations across the country. The variant has forced some states and cities to reimpose mask mandates and social distancing measures, which could affect consumer spending and business activity. The variant has also slowed down the vaccination campaign, as some people remain hesitant or resistant to getting vaccinated.
