Bad news for the American labor market, good news for financial markets

Macro commentary by eToro analyst for Romania, Bogdan Maioreanu


The US economy significantly slowed down its job growth in August, creating only 235,000 new positions, down from over a million in July as the leisure and hospitality sector fell flat, with the delta variant affecting consumer confidence.

The bad news for the labor market might be very good news for the financial markets. The disappointing hiring is giving investors reason to believe that the Federal Reserve will continue its emergency bond purchases program, and that tapering won’t come before November this year, sustaining investors’ risk appetite. At least as long as hiring doesn’t slow too much, giving economic growth concerns. The August job creation numbers were drastically below the 720,000 new hires that analysts had expected, while the unemployment rate fell slightly to 5.2% from 5.4%.


Romania’s unemployment rate of 5.1% is at a similar level to the US one, but unlike the American one, after four months of dropping, it actually went slightly up in July, from 5% in June. However, in a sign of possible room for improvement in the coming months, job vacancies are on the rise, with 39,500 unfilled jobs in Q2 of 2021, up 1,100 from the previous quarter. The number of vacancies went up with 5,300 from the same period of 2020.

But major changes are coming to the US labor market which could change the dynamics: starting today (September 6), an estimated 7.5 million unemployed Americans are losing the extra $300 in weekly jobless pay, with pandemic support for affected gig workers also expiring. As a result, economists and central bankers alike expect to see millions of workers more motivated to re-enter the workforce.

Generous pandemic support was blamed by some analysts for the reluctance of some people to return to work, especially in low-paid positions where they would earn less money than they did by staying at home. The United States issued $794 billion in combined state and federal unemployment benefits from March 2020 through July 2021. Over 46 million people received at least one week of support. By comparison, in 2009 only 14.5 million Americans collected at least one benefit payment and only $128 billion was disbursed.


Job openings recently topped 10 million for the first time and many companies are offering higher pay to attract workers. The August data showed a 0.6% increase in hourly pay from the previous month. Still, millions of people who had a job before the pandemic haven’t yet returned to work. Given that severe labor shortages seem to have persisted in August, economists anticipate another month of upward pressure on wage growth.


The number of people applying for U.S. unemployment benefits at the end of August fell to 340,000, a new pandemic low, suggesting that the delta strain of the coronavirus hasn’t done much damage to the economy yet. “Businesses which let staff go might find it very hard to rehire them after the delta wave is over, given the record number of job openings,” said Pantheon Macroeconomics chief economist Ian Shepherdson in explaining the steady decline in layoffs. However, the labor force participation rate – the percentage of the civilian noninstitutional population 16 years and older that is working or actively looking for work – is at 61.7% in July, far from the 63.3% pre-pandemic.

It is possible that US employers will finally be able to fill open positions and meet customer demand, cooling some of the pricing pressures that have persisted as shortages abound.  But the fight is not won yet, besides the enhanced federal unemployment benefits, there are several other temporary factors related to Covid‑19 that are holding back the jobs recovery like reduced availability of child care, an opioid crisis and worries about the highly infectious delta variant. Some of these might ease in the coming months but not right away.


Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.

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