Poor US Payrolls kick the tapering can down the road – UOB

UOB Group’s Senior Economist Alvin Liew comments on the latest Nonfarm Payrolls figures (Friday).

Key Takeaways

“Job creation came in well below expectations in August for the US economy, with the surge of COVID-19 infections across US due to the Delta variant blamed for denting the recovery pace of the US labor market. In the latest report by the Bureau of Labor Statistics (BLS), the US nonfarm payrolls (NFP) rose by 235,000 jobs in Aug, a big miss from the Bloomberg median estimate of 725,000 jobs, while Jul jobs increase was revised higher to show 1.053 million more jobs created (versus 943,000 previously reported).”

“The unemployment rate expectedly eased further to 5.2% in Aug (from 5.4% in Jul), the lowest in 16 months, since the onset of the pandemic (Mar 2020). Nonetheless, the unemployment rate was still 1.7ppts above the low of 3.5% recorded in Jan and Feb of 2020. The dip in unemployment rate was amidst the 235,000 jobs print and a steady participation rate of 61.7% in Aug (same as Jul).”

“Services were mainly responsible for August job gains but at markedly lower numbers while government hiring drastically dropped.”

“With the disappointing Aug jobs report, expectations for the Federal Reserve (FED) to begin tapering its bond-buying program has been dialed back (but not derailed) as FED officials would want to see more jobs data points before considering it as meeting the ‘significant further progress' benchmark to start reducing QE. The other factor the FED will watch is the resurgence of COVID-19 Delta variant infections and its consequential downside impact to the economy and jobs recovery. The obvious push factor for the FED to reduce some monetary accommodation will be the elevated inflation environment. We keep our call and expect the pledge of the taper timeline to be unveiled in the 21/22 Sep 2021 FOMC, of which the first taper action will only be in Dec 2021. Waiting to taper in Dec will also give the FED enough time to see how US politicians resolve the ongoing US debt ceiling limit standoff.”