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A Final Boost To Jobs Creation Before Jackson Hole

 AUG 12, 2021

Stellar jobs report.

The U.S. Bureau of Labor Statistics (BLS) released a solid jobs report last Friday. It was reported that 943,000 jobs were created in July, surpassing the market’s expectation of 870,000 and is the highest figure since August 2020. Furthermore, the number of jobs added for June and May have been revised upwards from 583,000 to 614,000 and 850,000 to 938,000 respectively, adding an additional 119,000 jobs for both months. As with the previous months, leisure and hospitality continues to be the main driver of the strong growth in jobs, adding 380,000 jobs in July. As of July, the U.S. job market is 5.8 million jobs away from its pre-pandemic level.

Unemployment rate declined sharply in July and is at its lowest level since last April when it peaked at 14.7% due to the COVID-19 pandemic. Strong progress has been made since then and unemployment rate is currently just 1.9% above its pre-pandemic level of 3.5%. Apart from strong jobs creation and lower unemployment rate, average hourly earnings continue to rise for the fourth straight month due to upward pressure on wages as a result of a rise in demand for labour as the economy starts opening up.

Labour supply shortage continues to hinder the full potential of the job market.

Although the number of jobs added into the economy in recent months has been impressive, bear in mind that we have yet seen the full potential. Specifically, the gap between the demand and supply of jobs is still wide. According to the Job Openings and Labour Turnover Survey (JOLTS), the number of job openings on a monthly basis has been increasing since the start of this year and has hit an all-time high of 10.1 million jobs openings in June with the largest industry being the professional and business services which sees an increase in 227,000 openings. This shows that labour demand has been increasing as more firms are looking to hire and are willing to pay more to attract job seekers.

On the other hand, labour supply remains weak due to the ongoing pandemic. In its monthly report, the National Federation of Independent Business (NFIB) highlighted that the number of small business owners that reported unfilled job openings has hit 49% in July. With the ongoing shortage of labour supply, we may be seeing a persistent increase in wages for the time being.

Fed committee members more convinced on an earlier QE tapering.

With several months of strong jobs report and inflation data, the next focus will be on what the Federal Reserve thinks about the recent performance of the two economic indicators. Specifically, to what extent has the two indicators contributed to the central bank’s progression towards its dual mandate, i.e., maximum employment and price stability. Although the Fed will be taking a break from its monetary policy meeting this month, we can still expect major announcement(s) to be made from the central bank during the annual Jackson Hole Symposium from 26-28 August. As mentioned in my previous post U.S. Economic Recovery On Track But Far From Complete, there are speculations in the market that the Fed will be dropping a hint on QE tapering.

With the recent strong jobs report being the final release before the symposium, this will better convince the Fed committee members that an earlier tapering of quantitative easing (QE) is warranted. Just earlier this week, committee members Raphael Bostic and Tom Barkin sent out a hawkish tone when they expressed support for an earlier tapering of QE, justifying with the fact that the U.S. job market has been making strong progress towards the Fed’s goal and that inflation has exceeded its 2% target and will likely be sustainable.

In conclusion, all eyes will be on the Jackson Hole Symposium as the market awaits any major announcements on QE tapering from the Fed.