Friday’s jobs report reflected the effects of both the COVID-19 Delta variant and the severe labor shortage in the US labor market.

Nonfarm payroll employment increased by just 235,000 in August, after an upwardly revised increase of 1,053,000 in July. The published unemployment rate ticked down from 5.4 to 5.2 percent, and the true rate, after adjusting for the misclassification error, declined from 5.7 to 5.4 percent. The number of jobs is still 5.33 million below February 2020 levels, with women representing 56.1 percent of these employment losses. The labor force participation rate remained unchanged at 61.7 percent.

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The negative effects of the Delta variant on hiring and the economy were apparent in the August nonfarm payrolls print. In August, real-time statistics showed a significant drop in spending and mobility metrics on leisure-related categories. And consumer confidence declined in August as well. As a result, today’s jobs report showed slower employment growth in in-person services. After growing rapidly in recent months and being a major contributor to overall job growth, in August there was no change in the number of jobs in the leisure and hospitality sector. In the previous COVID-19 surge from November 2020 to January 2021, employment in leisure and hospitality not only decelerated, but declined.

Meanwhile, wage data revealed that US labor markets remain tight. The unemployment rate continued to fall, and there were no signs that the severe labor shortage is easing. Wages are still increasing very rapidly. Average hourly earnings were up 6.2 percent (annual rate) over the past five months, signaling that employers are offering stronger incentives to attract qualified workers. Much of the acceleration in wages comes from the earnings of blue-collar and manual services industries such as leisure and hospitality and transportation.

Looking forward, the ongoing increase in the number of new infections is likely to lead to another subpar payrolls print in September. Towards the end of 2021, these severe labor shortages are likely to ease as enhanced unemployment benefits expire and schools reopen, leading more workers to return to the labor market.