The most recent jobs report was disappointing. Only 235,000 jobs were created in August 2021, versus an expectation of 720,000. Leisure and hospitality jobs had led the way this year — until August. For the six months before August 2021, those industries had averaged 350,000 new jobs per month. Last month there were no job gains in the sectors. The drop-off in leisure and hospitality resulted in August’s jobs gains being the weakest monthly gain since January 2021.
The weakness was attributed to rising COVID-19 cases. Consumer demand ticked down as the uncertainty regarding new infections went up. U.S. infection cases are up to about 150,000 cases a day. The jobs report saw an increase of about 400,000 people who said they couldn’t work for pandemic-related reasons, bringing the total to 5.6 million. The reluctance of would-be workers confirmed the apprehension of businesses to bring on new employees. Corporations paused hiring as hot, hot, hot economic growth cooled to merely hot.
The Delta variant wave is a caterwauling reminder that the pandemic remains one of the most critical factors driving the economy, if not the single most crucial factor. One other significant factor is that, beginning as early as June 2021, roughly half of U.S. states opted out of taking the federal $300 weekly plus-up for unemployment benefits. Governors of those states argued that businesses were competing against the federal benefits for workers. Those additional federal plus-up benefits were eliminated for every state on Labor Day, September 6, 2021.
The governors hypothesized that by eliminating the additional benefit, people would go back to work. It’s too early to determine if that hypothesis is true or not. However, it is possible that the unintended consequence of denying those people that extra $300 per week resulted in the drop in aggregate demand. It’ll be interesting to look at all the data once enough time has passed in order to measure the fallout correctly. Not that there needs to be computational time; there needs to be enough time to compare periods. However, thus far, economists at JP Morgan and Columbia University have found “zero correlation” between job growth and states’ decisions to opt-out of federal unemployment aid.
We don’t yet honestly know the effect of eliminating those additional $300 weekly payments. If dropping the extra unemployment benefits does fail to pull people back into the workforce, it could create a negative feedback loop. Demand for goods and services will drop, and businesses won’t need to hire as many people. This risk is heightened because, as of September 6, 2021, benefits for self-employed and gig workers (freelancers) were terminated. Also on Labor Day, special consideration was canceled for those unemployed for more than six months. Roughly 8.9 million Americans will lose all or some of these benefits. For comparison, during the Financial Crisis of 2008, jobless benefits of different forms that began in 2008–2009 were extended until 2013. When those benefits ceased, there were 1.3 million people still receiving amped-up aid.
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