September 2, 2021
Today’s payroll miss fits with the trend from the past 2-3 weeks. US and global economic data has clearly pointed to some deceleration at the start of H2’22. The two recent reports on US consumer sentiment have disappointed vs. expectations and US high-frequency data (mostly airline/hotel bookings) also show some signs of moderating activity. These disappointments have largely been attributed to delta variant concerns, but unchanged US mobility data suggest little material impact on actual consumer spending. Of course, rising concerns around the delta variant could impact sentiment and so-called ‘animal spirits,’ but it seems far more likely for these headwinds to fade as we move forward. To us, the lower consumer sentiment readings reflect a growing realization that Covid may become a less-dangerous, but more lasting endemic. Countries like Israel and the UK that were early to adopt higher vaccination rates have seen increased cases, but the hospitalization trends reflect symptoms resembling a moderate-to-strong flu season. Early signs of a peak in US delta variant infections can be seen in decelerating hospitalization rates as the second derivative approaches zero in all regions. The labor market is always the last piece of the economy to recover from a recession and we’re not surprised to see it lag now. Consumer fundamentals remain extremely healthy with elevated savings rates and strong household balance sheets supported by a gradually improving labor market. Notwithstanding the August miss, payroll gains have been extremely strong since the onset of the pandemic, adding 17M jobs since April 2020. The Unemployment Rate is declining and improving wage growth (up +4.3% year-over-year in August) is contributing to increased levels of disposable income as US large enterprise job openings (JOLTs report) still sit at a record 10.1M. And according to a recent Reuters report, more than half of US small-business owners reported unfilled job openings in August.