America’s job engine sputtered last month – what does it mean for our tapering timeline? Falling significantly short of expectations, America’s job creation engine coughed last month. Breaking a string of robust job gains in the last two months, August only saw the addition of 235k new jobs. High contact, Covid-sensitive sectors of the economy drove the shortfall, with leisure and hospitality job gains coming to a screeching halt, even as wages in that sector accelerated rapidly last month (1.3% month over month). For some perspective, total jobs are now 5.3 million below February 2020 levels. The economy lost 22.4 million jobs over the March-April period last year; it has netted 17.0 million since then.

On whole, even with an unprecedently high level of job vacancies and more attractive wages, the weakness shows that worries over public-health conditions due to the delta variant continues to cause many workers to stay out of the workforce. Strong wage growth in August suggests that the supply of labor, not the demand for it, drove the weakness in new jobs.

Our take: In what is historically the most impactful piece of economic data on interest rates, the significant miss in job creation last month adds a new risk to our view that the Fed will start the tapering process – easing off the stimulus throttle – at the end of the year. While it looks bad on the surface, one month’s worth of jobs data certainly doesn’t make a trend and there’s a silver lining of sorts in the data: positive momentum for workers rejoining the work force across a broad spectrum of demographic groups in the coming months.

Skeptical? Here’s some reasons to consider: 1) The looming expiration of extra unemployment benefits – the largest impact will be seen in the hard hit, pandemic sensitive leisure, and hospitality sectors.  2) Most states are keeping school reopening plans on track.  3) Hospitalization and the Covid positivity rate both fell in the last week of August, suggesting the current infection wave may have peaked, and 4) The availability of vaccine booster shots, and perhaps inoculations for young children, are likely right around the corner.  All told, we see the job creation weakness as just a bump in the road and the prospects for improvement in September are good.

Soaring COVID-19 infections dented consumer’s confidence in the future.  The survey showed consumers – who’s spending alone drives 70% of the US economy – weren’t as upbeat about the jobs market and were less inclined to buy a home or big-ticket items over the next six months. The gauge, conducted by the Conference Board, dropped 11.3 points in August to 113.8, lower than most expected and the lowest since February. It was also revised 4.0 points lower in July, following gains in each of the prior five months. It’s a troubling signal for economic momentum heading into the fall. On the positive side of the coin, consumers’ lukewarm attitudes appear to be more the result of virus fears rather than a souring of employment or income prospects.

Our take: As long as the jobs market is improving, household spending patterns should remain resilient. Consumer demand is critical to the economic outlook. While we expect consumer spending habits to moderate in the coming months, we still expect solid spending toward year-end. Ever wonder why we keep saying that the Fed’s #1 priority is helping create new jobs? Now you know why. It’s all about jobs, and now a strong showing in September and October’s jobs data is more important than ever.

Supreme court struck eviction ban. The national eviction ban in the US is no longer in effect after the Supreme Court struck it down, leaving the more than 11 million people behind on their rent at risk of being forced out of their homes. However, at least five states and Washington, D.C. will continue to ban evictions: Illinois will do so until 19 September; California’s ban will last through 30 September; and New York, New Jersey and D.C. keep their bans until January 2022. New Mexico also has an eviction moratorium in effect, and an expiration date has not yet been announced.