US private payrolls rise by 374,000 in August – badly missing estimates as virus cases surge higher

Now Hiring sign Boston
A help wanted sign is posted outside of Dunkin Donuts in Downtown Crossing in Boston on June 14, 2021. Jessica Rinaldi/The Boston Globe/Getty Images
  • US private-sector firms added 374,000 jobs through August, ADP said in its monthly employment report.
  • The reading fell short of the 613,000-payroll estimate but marked a decent pickup from July’s gain.
  • August saw new COVID cases reach their highest since January and the reinstatement of some mask rules.
  • See more stories on Insider’s business page.

Hiring by private-sector US businesses fell well short of expectations in August amid rebounding COVID cases and the return of some mask-wearing orders.

Private payrolls rose by 374,000 last month, ADP said in its monthly employment report. That missed the 613,000-payrolls estimate from economists surveyed by Bloomberg. While it did show a pickup from July’s 326,000-payroll gain, it’s still the second-smallest increase since February.

The August report shows the labor market struggling to recover as COVID cases surged higher. Daily case counts reached their highest since January last month as the Delta wave intensified across the country. The increase also led state and local governments to reimpose some mask-wearing rules, marking an abrupt ending to the reopening experienced through spring and early summer.

“The Delta variant of COVID-19 appears to have dented the job market recovery,” Mark Zandi, chief economist of Moody’s Analytics, said. “Job growth remains inextricably tied to the path of the pandemic.”

The print also suggests some states’ early cuts to federal unemployment benefits did little to push Americans into the workforce. Twenty-six states prematurely ended the federal government’s boost to unemployment insurance in a bid to accelerate hiring. While the move was meant to counter the labor shortage, recent studies suggest it did more harm than good, hurting spending and only slightly improving hiring, Insider’s Juliana Kaplan reported.

Other measures of the labor market’s rebound show a healthier rate of improvement. Weekly filings for unemployment benefits steadily fell through August and sit just above their pandemic-era low. Continuing claims, which track Americans receiving jobless benefits, fell to 2.86 million for the week that ended August 14. That’s the lowest since March 2020, when claims first spiked higher.

And economists expect the government’s payrolls data to show stronger August hiring than ADP’s. The Friday report is forecasted to show a 700,000-payroll gain, and the unemployment rate is expected to slide to 5.2% from 5.4%.

Hiring in the age of Delta

Once again, the leisure and hospitality sector counted for the bulk of the month’s job gains, with businesses adding 201,000 payrolls through August. Education and health services firms followed with a 59,000-payroll increase. The strong gains continue a trend of the hardest-hit sectors seeing the fastest hiring through the recovery.

Medium-sized businesses – those with 50 to 499 employees – counted for 149,000 of the month’s added payrolls. Businesses with more than 500 employees added 138,000 jobs, and those with fewer than 50 workers added 86,000 payrolls.

Three trends are set to guide the labor market’s rebound through the second half of 2021, Nela Richardson, chief economist at ADP, said. The Delta wave presents the greatest near-term risk to the recovery. Service businesses are doing “most of the heavy lifting” in hiring, but the new variant creates uncertainty that will likely weigh on job creation, she said.

The rebound in virus cases is also sending consumer confidence into a downward spiral. The University of Michigan’s consumer sentiment index tumbled to 70.2 from 81.2 in early August, its lowest level since 2011 and the biggest one-month drop since early in the pandemic. That decline will most dramatically hit job growth at businesses that require close physical proximity like airlines and restaurants, Richardson said.

The third trend is more encouraging. Labor demand remains strong, with job openings still at record highs and wages rising at a healthy pace. Demand for workers should serve as a “positive counterbalance” to the Delta wave and waning confidence, Richardson said. But the months-long labor shortage suggests worker supply won’t swiftly meet demand.