'Worrisome Combination': Experts React To Disappointing August Jobs Report

The SPDR S&P 500 ETF Trust SPY dipped lower Friday morning after the Labor Department reported one of the most disappointing monthly jobs reports in recent history.

The U.S. added just 235,000 jobs in August, falling well short of consensus economist estimates of 720,000 jobs. The U.S. unemployment rate fell to 5.2% from 5.4%, in-line with economist estimates.

Wage growth continued to accelerate to 4.3%, exceeding consensus estimates of 4%.

The Labor Department also revised July’s total job growth from 943,000 to 1.053 million and June’s job growth from 938,000 to 962,000.

Related Link: 4 Ways Congress Could Move Markets In September

Bad Combination: Jay Pestrichelli, CEO of ZEGA Financial, said the August job numbers suggest the outbreak of the delta variant of COVID-19 may be disrupting the U.S. economic recovery.

“Friday's jobs report showed a significant slowing in hiring, but a surge in wage growth, which is a worrisome combination for the economy. Slow economic growth and rising inflation is the worst case scenario for the economy,” Pestrichelli said.

Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, said the numbers were likely bad enough to keep the Federal Reserve from tapering at least through the end of 2021.

“Looking at the average hours per week stat and the average wage stat, both of which were very strong, suggests that labor demand is still high – and the economy is still growing,” McMillan said.

“Looking at the unemployment and underemployment numbers, which dropped, as well as the labor force participation rate, it looks to have come from workers electing not to enter the workforce.”

Tapering Delayed? Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said the Fed will now likely not announce its tapering plans until its November meeting.

“Now is the time to begin finalizing your (asset) shopping lists and be prepared to put cash to work in the event we hit some air pockets this Fall, as the stock market has gone this entire year without a single 5% pullback. If we get a significant correction, we would look to add to our positions in the financials and materials sectors, including banking and mining companies, and we would look to add travel and hospitality companies to our portfolios, once peak fears of covid variants has been priced in,” Zaccarelli said.

Joseph Brusuelas, Chief Economist for RSM US LLP, said the disappointing report likely will not shift market expectations for Fed tapering in any meaningful way.

“This report aligns well with our call for a November announcement and December start to tapering operations, which we think affirms the majority view on the Federal Open Market Committee and underscores current investor expectations. Thus, we do not expect that this report, despite the topline disappointment, will not impact market valuations on inflation expectations, current yields, or equity valuations in a material fashion,” Brusuelas said.

Benzinga’s Take: The Fed is in a difficult situation in that inflation remains elevated and wage growth is accelerating, but jobs growth appears to be decelerating. It remains to be seen at what point the combination of rising wages and an end to pandemic-era benefits will be enough to lure unemployed Americans back into the workforce.