MACRO: Weakening US labour market recovery

US companies created far fewer jobs than expected in August as according to some analysts, the spread of Delta variant dented labour market recovery. Private payrolls increased by 374k jobs in August, compared with a downwardly revised 326 thousand increase in July, the ADP National Employment Report showed on Wednesday. Today's reading came in well below well below analysts' estimates of a 615k rise. More ominously, the only jobs added were waiters and bartenders (i.e., leisure and hospitality). "We have seen a decline in new hires, following significant job growth from the first half of the year. Despite the slowdown, job gains are approaching 4 million this year, yet still 7 million jobs short of pre-COVID-19 levels. Service providers continue to lead growth, although the Delta variant creates uncertainty for this sector", said Nela Richardson, ADP chief economist. 

For the second month in a row, the ADP Private Payroll employment report turned out to be a disappointment. Source: Bloomberg via ZeroHedge

Richardson also pointed out that today's data highlighted a downshift in the labor market recovery. Also US manufacturing ISM report also seems to confirm this trend. One of the most closely watched components - Employment actually dipped into contraction for the first time this year. 

Two major  ISM manufacturing components - Employment and Prices Paid both fell sharply last month. Source: Bloomberg via ZeroHedge

Both reports came ahead of the Labor Department's official jobs report, which will be released on Friday and many investors now wonder whether today's weak reading will translate into NFP? This is important as Chair Powell recently signaled that that the Fed is primarily focused on the labor market recovery while inflation is of secondary importance. Also Fed Governor Christopher Waller said the U.S. central bank could start to reduce its support for the economy by October if the next two monthly jobs reports show employment rising by 800,000 to 1 million, as he expects, adding that there's "no reason" to go slow on tapering the Fed's bond purchase program. Although today's ADP reading may suggest that Friday's reading will be much weaker than expected, it should be noted that ADP has under-guessed Nonfarm Payrolls in 5 of the last 7 months.