The US economy added just 235,000 jobs in August, a sharp drop from preceding months, as employers cut back hiring plans amid the spread of the Delta variant of the coronavirus virus.

The unemployment rate declined by 0.2 percentage points to 5.2% from 5.4% in July and has fallen dramatically from a high of 14.7% in April last year. So far this year, monthly US job growth has averaged 586,000, according to the Bureau of Labor Statistics.

But August’s hiring slowdown was unexpected. Economists polled by Bloomberg had anticipated a gain of 725,000 jobs for August, after surging over 1m in July.

In a White House address, Joe Biden largely glossed over the disappointing figures, describing the US economy as “durable and strong” and claimed his administration had added double the number jobs of any prior first-year president.

Biden say:

“While I know people wanted to see a larger number today, and so did I, what we’ve seen this year is continued growth month after month in job creation.

“Wages are going up. This is the kind of growth that makes our economy stronger, and not just boom or bust.”

According to the latest government figures, job increases in August came from gains in professional and business services, transportation and warehousing, private education, and manufacturing.

But employment in retail declined over the month as employers backed off from adding workers in lower-wage industries such as transportation, leisure and hospitality in response to weakening demand for those services, itself a reflection of the effect that the Delta variant is having on consumer activity.

About 5.6 million people did not work at all or worked fewer hours at some point in August due to the pandemic, an increase of 400,000 on July.

“The drop-off in high contact services employment growth suggests that, even though few states have reimposed restrictions beyond mask mandates, the Delta variant is nevertheless weighing on activity by scaring off customers,” said Paul Ashworth, chief US economist at Capital Economics.

Here’s the full story:

That’s all for us for today. Have a lovely weekend, we’ll be back on Monday. GW

President Joe Biden has spoken about today’s jobs report now, and insisted that the economy is strong enough to weather the pandemic.

Despite the impact of the Delta variant, we’re seeing a recovery that is durable and strong, Biden says, as he defends his track record on the economy.

He points out that the economy did add jobs in August [235,000, down from just over one million in July], and that the unemployment rate fell to 5.2%.

But he also acknowledges that people were looking for a higher jobs number today, as indeed he was, and that the delta variant hit payrolls growth.

Today’s report shows that the steps we’ve taken, passing the Rescue Plan and vaccinating 175m people, make our economy capable of growing and adding jobs even in the face of this continuing delta surge.

There’s no question the delta variant is why today’s jobs report isn’t stronger. I know people were looking, and I was hoping, for a higher number.

Biden says he’ll lay out steps next week to combat the Delta variant, and address the fears and concerns over the pandemic, including protecting schools, businesses, the economy and families from the threat of Delta.

Biden says the US has added around 750,000 jobs per month over the last three months, and added jobs in each of his first seven jobs reports.

He also points to the rise in earnings, saying wages are going up too (average hourly earnings jumped 0.6% in August).

Biden adds that America is the only developed country whose economy that is bigger than above the pandemic. This progress means that America is able to weather the ups and downs of the delta variant, he says.

But Biden adds that despite this progress, America isn’t where it needs to be in the recovery.

First, the US needs to make more progress fighting the spread of the delta variant, especially among the unvaccinated.

And states can choose to extend pandemic benefits when they expire next week.

Second, he calls for the Senate to finish passing this economic agenda (the $3.5trn economic recovery plan).

The New York stock market has opened lower, as investors digest the weak jobs report.

• Dow Jones industrial average: down 140 points or 0.4% at 35,305 points
  
• S&P 500: down 13 points or 0.3% at 4,524 points
  
• Nasdaq: down 11 points or 0.1% at 15,320 points

Wall Street is looking for clues as to when the Federal Reserve might feel the economy is strong enough to start slowing its $120bn-per-month bond buying programme, which has been supporting asset prices.

The slowdown in hiring last month, with just 235,000 new jobs, does not appear to show the “substantial further progress” towards the Fed’s goals of maximum employment.

It also suggests the economy is weaker than thought.

Paul Ashworth, chief North America economist at Capital Economics, thinks an announcement on tapering is now unlikely to come this month:

The well-below consensus 235,000 gain in non-farm payrolls in August suggests that the Delta variant is beginning to weigh on the economy, with leisure & hospitality employment unchanged on the month.

Even allowing for the fact that first estimates for August often disappoint on the downside, the extent of the slowdown in jobs growth all-but rules out any tapering announcement at this month’s FOMC meeting and, if this weakness persists, then it could be pushed into early next year.

Robert Alster, CIO at wealth manager Close Brothers Asset Management, says:

In the eyes of the market, the US labour data is a double edged sword. The staggering weakening we’ve seen in August’s labour activity is a sign that the delta variant is having a hugely damaging impact, which will in turn hit growth and confidence.

But conversely, strong labour data - as seen in June and July’s nonfarm payrolls - would push the Fed towards a more Hawkish approach to monetary policy, with a tapering of asset purchases as soon as November and a rate rise in 2022.

This runs the risk of stifling US growth before it has had a chance to bed in – which could be the push the Democrats need to remove [Fed chair Jerome] Powell from office. After eighteen months of uncertainty, stability is the order of the day – we must hope for a steady pace of recovery, rather than volatile booms and busts which will spook consumers, investors, and policy-makers alike.”

Today’s disappointing payrolls number suggests that the latest wave of Covid infections may be dampening the pace of economic recovery more than had been anticipated, says Mike Bell, global market strategist at J.P. Morgan Asset Management:

The Covid sensitive leisure and hospitality sector, which has been the biggest driver of the labour market recovery over the last six months, was the biggest disappointment, adding barely any jobs.

Along with the recent drop in consumer confidence, this data adds to the sense that the economy is not yet fully free from the clutch of Covid. We think that the near term hit from the latest Covid wave will, mostly likely, only slightly delay the recovery, given still strong pent-up consumer savings but it does go to show that Fed tapering by the end of the year isn’t a done deal.”

Employment levels across America’s leisure and hospitality firms was unchanged last month, in a clear sign that the Delta variant is hitting the labor market.

Although arts, entertainment, and recreation firms added 36,000 jobs, this was more than offset by a loss of 42,000 jobs in food services and drinking places.

That indicates that the booming reopening trade has faltered.

Leisure and hospitality had been adding an average of 350,000 new jobs per month over the prior 6 months, as the rollout of vaccinations had allowed restrictions to ease, and restaurants and bars to welcome customers back again.

Retailers cut around 29,000 jobs in August, including 23,000 jobs lost at food and beverage stores and 13,000 at building material and garden supply stores.

The US unemployment rate has dropped to 5.2%, from 5.4%, with the number of people out of work edging down to 8.4m.

Both measures are down considerably from their highs at the end of the February-April 2020 recession. But, they’re still sharply above their levels before the pandemic (3.5 % and 5.7m, respectively).

Earnings growth has picked up, though, in the battle to hire workers.

The Bureau of Labor Statistics says:

Average hourly earnings for all employees on private nonfarm payrolls rose by 17 cents to $30.73 in August, following increases in the prior 4 months

In August, average hourly earnings of private-sector production and nonsupervisory employees rose by 14 cents to $25.99.

The data for recent months suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages.

Just in: The US added just 235,000 new jobs in August, a sharp and disappointing slowdown in hiring.

That’s much weaker than expected, as the Delta variant of Covid-19 hit America’s economy last month.

This suggests that the pandemic is now hurting the labor market.

During August, the number of people hospitalised with Covid-19 in the US rose above 100,000 for the first time since January, with hospitalizations of people under the age of 50 at the highest level since the pandemic began.

July’s non-farm payroll has been revised higher, to show that just over 1 million jobs were created that month - but overall, this is still a blow.

More to follow!

Swedish carmaker Volvo has warned that the supply chain crisis will hit its sales in the second half of this year.

Volvo, owned by China’s Geely Holding, has reported that sales fell over 10% year-on-year in August, as material shortages forced it to temporarily halt production at some factories.

Sales fell 25% in Europe compared with August 2020, and were down 17% year-on-year in China, but they did rise 3% in the US.

It says:

Volvo Cars reported global sales of 45,786 cars in August, down 10.6 per cent compared with the same period last year. Overall underlying demand in the car industry and for Volvo Cars’ products remained very robust.

Since mid-July, supplier shut-downs due to Covid-19 in South East Asia, especially in Malaysia, has worsened an already strained supply situation. These material shortages have led to temporary production halts at Volvo Cars’ facilities in Sweden, Belgium, China and the US, with reduced production volumes as a result.

Given the supply problems, Volvo now warns that sales could fall year-on-year in the second half 0f 2021:

Volvo Cars continues to monitor the situation and currently expects that, for the second half of 2021, it will be challenging to achieve the volume levels achieved during the same period in 2020. This will have an impact on revenue and profit, but Volvo Cars’ outlook for the full year 2021 still remains.

Eurozone retail sales have fallen unexpectedly, adding to signs of an economic slowdown, led by a sharp drop in online shopping.

Retail sales across the euro area fell by 2.3% month-on month in July, much weaker than the 0.1% rise expected, EU statistics office Eurostat says.

Mail order and internet sales fell by 7.3% during the month -- suggesting that the pandemic boom in online shopping has faded as shops have reopened.

Overall, sales of non-food products dropped 3.5%, with automotive fuels down 1.6% and food, drinks and tobacco down 0.7%.

The largest monthly decreases in total retail trade were registered in Ireland (-5.9%), Germany (-5.1%) and Austria (-3.9%), while Croatia (+2.5%), Malta (+2.3%) and Luxembourg (+2.2%) saw the fastest growth.

On an annual basis, retail sales were still 3.1% higher than a year ago, in July 2020.

June sales were revised up a little, to a rise of 1.8% from 1.5% month-on-month and to 5.4% from 5.0% year-on-year.

Neil Birrell, Premier Miton chief investment officer and manager of Premier Miton Diversified Growth Fund, says:

“There have been worrying signs of late that the pace of the recovery is slowing, and that was backed up this morning by Eurozone retail sales figures for July. They fell 2.3% from June, significantly worse than expected.

The impact of COVID is still real and is likely to be with us for some time. While the recovery is still strong, doubts over the outlook will increase with every data point like this.”

The UK’s supply chain crisis has dragged growth down to a six-month low, as companies struggle to handle shortages of staff and raw materials.

Activity weakened across the service sector in August, and rose at the slowest since the recovery began in March after the lockdown eased. Backlogs of works built up despite a surge in hiring.

That’s according to the latest IHS Markit/ CIPS UK Services PMI Business Activity Index, just released -- matching a similar slowdown at factories reported earlier this week.

This slowdown is partly due to a return to more normal demand after the initial post-pandemic surge.

But there were also widespread reports that shortages of staff and disrupted supply chains had constrained growth in August, says Markit -- as the lack of key workers such as lorry drivers hits retailers.

Services companies also reported a “solid increase” in backlogs of work across the service economy, which were overwhelmingly blamed on staff shortages.

Companies surveyed in the report pointed to unexpectedly high levels of employee turnover, as well as absences due to COVID-19 isolation rules -- which were relaxed for double-vaccinated people during August.

This has pulled the UK Services PMI down to 55.0, towards the 50-point mark showing stagnation. That’s down from 59.6 in July, and sharply below below May’s record high of 62.9.

On the upside, firms reported that staff recruitment picked up to its strongest since the survey began in July 1996 -- as businesses sought to rebuild workforce numbers in response to rising sales.

Output across the wider private sector also eased considerably in August, Markit adds -- with both service sector and manufacturing firms signalling the weakest growth for six months.

Private sector employment numbers jumped at the fastest pace since this index began in January 1998, largely fuelled by a rapid rise in recruitment across the service economy.

But, the report also shows that shortages of staff and raw materials acted as a constraint on the recovery in August, with supply chain disruption leading to an especially sharp rise in backlogs of work at manufacturing companies.

Tim Moore, Economics Director at IHS Markit, which compiles the survey, explains:

“The service sector lost momentum for the third consecutive month as the impact of looser pandemic restrictions faded in August. Many businesses suffered constraints on growth due to staff shortages, self-isolation rules and stretched supply chain capacity.

“Service providers signalled the sharpest rise in employment since data collection began 25 years ago. Additional staff recruitment typically reflected efforts to return workforce numbers to pre-pandemic levels after widespread job cuts last year. Many survey respondents commented on long wait times to fill vacancies and an unexpectedly high staff turnover as the UK economy reopened.

Tight labour market conditions pushed up wages as service sector companies sought to attract and retain employees. The overall rate of input cost inflation remained steep, but eased from the record high seen in July. “Business optimism edged up to a three-month high during August, suggesting that service providers have become slightly more confident about longer-term prospects for demand and supply availability.”

The UK’s wholesale food industry is warning that it cannot protect consumers from price rises forever, as they face soaring transportation costs and are having to spend extra money on incentives in order to attract new workers.

It comes as the cost of products such as tomatoes has almost doubled in the past year, while the price of vegetable oil stands at a 30-year high. A kilogram of tomatoes wholesale now costs £1.47 compared with 75p a year ago.

Wholesale businesses are doing all they can to mitigate rising costs but will not be able to continue absorbing them, said Darren Labbett, the managing director of Woods Foodservice, a wholesaler that supplies the pub and restaurant trade. He said the industry was facing a “perfect storm” of adverse effects.

“We are trying our utmost to absorb as much of the increases as possible but we, as well as the rest of the supply chain, can’t absorb those price increases forever,” Labbett told BBC Radio 4’s Today programme. “Vegetable oil is at its highest price now for over 30 years.

“We are also taking other actions, and that’s by ordering in more stock in advance and carrying more stock than we would normally carry. We have doubled the lead time to ensure if there are any delays due to a shortage of lorry drivers that it doesn’t impact on the availability to our customers.”

However, Labbett said it was not possible to stock up on fresh produce because of its short shelf life. More here.

Yesterday, the United Nations food agency reported that food prices jumped in August, driven by strong gains for sugar, vegetable oils and some cereals -- partly caused by bad weather including droughts in America and frosts in Brazil.

European stock markets have opened cautiously ahead of the US jobs report this afternoon.

The Stoxx 600 index is flat, while the FTSE 100 has gained 13 points or 0.2% in London.

Melrose are the top riser on the FTSE 100, up 1.8% after reporting yesterday that trading was ahead of expectations as it benefits from the recovery in air travel. Barratt Developments (+1.3%) are also rallying after seeing its revenues and profits jump in the pandemic housing boom.

Neil Wilson of Markets.com says today’s Non-Farm Payroll reports are the main event.

The Federal Reserve has tied monetary policy tightly to the labour market and is yet to see the ‘substantial further progress’ it requires to start tapering bond purchases, let alone raise rates.

Therefore, the pace of job creation will give markets a signal as to the pace and timing of the Fed’s long-expected taper. Expectations are running around 720k for today’s print.

He adde that China’s service sector slowdown is casting a shadow.

Ahead of the jobs data, China’s slowdown is a striking a downbeat note for risk this morning. Caixin’s services PMI slid into contraction, hitting 46.7, its lowest reading since April 2020.

Eurozone businesses are still growing at considerable pace despite a slight slowdown last month in the face of ‘rampant’ cost pressures, the latest PMI survey shows.

Data firm IHS Markit’s composite index, which tracks activity in the sector, has come in at 59.0 for August - showing one of the fastest growth rates in the last 15 years, but slower than the 60.2 seen in July.

It’s also slower than the ‘flash’ estimate of 59.5 in mid-August, which suggests momentum faded through the month.

The survey found another marked expansion in business activity during August, with strong jobs growth - as firms tried to boost their capacities to handle strong demand for goods and services.

Business confidence, though, eased to a five-month low (although it remains relatively high). And firms continued to report high costs - with input costs rising at a rate that was only fractionally below July’s near 21-year high, and was once again driven by the manufacturing sector.

Joe Hayes, Senior Economist at IHS Markit, said August was “another solid result for euro area businesses”, with the the labour market is also performing well.

“The benefit of looser lockdown restrictions has fuelled two of the best expansions since mid-2006 in July and August, but a step down since the preliminary ‘flash’ number tells us that this growth momentum is fading.

While growth will naturally lose some impetus as the post-lockdown boom peters out, there are a number of other downside factors at play. The Delta variant has taken hold in Europe, while further material shortages and transport bottlenecks continue to restrain business activity. Rampant cost increases also persist, but slightly weaker rates of input and output price inflation provided some respite to both businesses and consumers alike, however.

China’s Alibaba Group will invest 100bn yuan ($15.5bn) by 2025 in support of “common prosperity”, it said, becoming the latest corporate giant to pledge support for the initiative driven by the president, Xi Jinping.

Beijing has been encouraging companies to share wealth as part of the effort to ease inequality in the world’s second-largest economy. Other companies that have made similar announcements include Tencent Holdings, which also pledged 100bn yuan, and Geely Automobile.

The government-backed Zhejiang News website said Alibaba’s funds will go towards areas such as subsidies for small and medium-sized enterprises and improving insurance protection for gig economy workers such as couriers and ride-hailing drivers.

It will also set up a 20bn yuan “common prosperity development fund”, the newspaper said, with Alibaba confirming the report.

Japan’s Topix stock market index has hit a 30-year high today, after prime minister Yoshihide Suga unexpectedly announced he will step down.

Suga is stepping aside from his party’s leadership after less than a year, amid mounting discontent at his government’s handling of the pandemic.

Stocks rallied as traders calculated that a change of leadership could lead to greater government spending to stimulate the economy and fight Covid-19.

Recent polls have shown support levels for the government hovering at about 25%, with many cities still under a state of emergency, ahead of a general election due later this year.

This is a plus for equities—with a new person leading, there will be expectations over policy steps,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo (via Fortune). “It’s possible that this could be somewhat of a turning point for local equities.”

My colleague Gavin Blair in Tokyo writes:

“The battle against the coronavirus takes a vast amount of energy and I don’t feel it is possible to carry on with that and fight the upcoming election for the party leadership,” said Suga in a brief statement to reporters, during which he took no questions.

Suga took office less than a year ago, stepping up after serving as chief cabinet secretary and government spokesperson. The ruling Liberal Democratic party (LDP) is due to hold its leadership election on 29 September and Suga had been widely expected to seek reelection.

A general election must also be held this year, with 17 October expected to be the likely date.

Support for Suga’s cabinet has been drifting continually downward as coronavirus infections have continued to rise even as the government imposed repeated states of emergency. Tokyo is under its fourth of state of emergency, which already been extended multiple times and is expected to be again before the scheduled lifting on 12 September. Japan has recorded nearly 16,000 deaths during the pandemic.

China’s service sector has tumbled into contraction, as the pandemic hits activity and demand.

The Caixin/Markit services Purchasing Managers’ Index (PMI) plunged to 46.7 in August from 54.9 in July. That’s its lowest level since April 2020, in the first wave of Covid-19 (any reading below 50 indicates contraction).

It shows that activity slumped last month, as restrictions to curb the COVID-19 Delta variant risk derailing the recovery in the world’s second-biggest economy.

China’s authorities brought in new restrictions to combat a rise in Covid-19 cases last month, including travel limits, which have hit the catering, transportation, accommodation and entertainment industries.

Wang Zhe, senior economist at Caixin Insight Group, explains:

“Service costs were still under great pressure amid elevated labour and transportation costs amid the Covid-19 resurgence,”

The sub-indexes for new business, prices charged, and employment in the Caixin survey all contracted in August.

Reuters adds:

Rooms that were originally 300-400 yuan are now discounted to around 200 yuan and “still no one is coming,” said the manager of a hotel in Zhangjiajie, Hunan province, one of the hotspots of the August epidemic.

“Delta is so terrible, people don’t want to go out.”

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Markets are bracing for the latest US jobs report, which will show whether America’s labor market continued to recover last month despite the Delta variant.

Economists predict around 750,000 new jobs were created last month, which would be a solid number after the 943,000 gains in July.

Jim Reid of Deutsche Bank says:

In terms of what to expect today, our US economists see nonfarm payrolls growing by +700k in August, which follows an 11-month high of +943k in July, and that in turn should see the unemployment rate fall to a fresh post-pandemic low of 5.2%. One caveat they do note however, is that historically the August report has disappointed consensus expectations, so it’ll be interesting to see if that happens again. Bloomberg’s consensus estimate currently stands at +725k.

America is still around 5.7m jobs shy of its pre-pandemic total, so a strong report would help close that gap. It could also encourage the US Federal Reserve to consider slowing the pace of its bond-buying stimulus programme.

CMC Market’s Michael Hewson explains:

With the various unemployment and stimulus benefits coming to an end this month, with some states starting to remove them earlier, hiring trends ought to remain robust over the next few weeks.

Even if they don’t, attention will soon shift to this month’s Fed meeting, in terms of a timeline towards a reduction in the monthly asset purchase program. A poor report won’t change the likelihood of a tapering of purchases, but it will affect the pace, timing and scope of one, potentially pushing it into next year. A poor number could also push the US dollar even lower, and on course for another weekly decline.

We also get the latest healthcheck on service sector companies in the UK, the eurozone and the US, which will show whether supply chain issues and Covid-19 are weighing on growth.

Yesterday the UK government was being urged to “get a handle” on the supply chain crisis.

The chair of a cross-party commission created to scrutinise the UK’s post-Brexit trade deals said ministers need to act now to avoid empty shelves in the run-up to Christmas.

Aodhán Connolly, who chaired an extraordinary session of the UK Trade and Business Commission, a group of cross-party MPs and business representatives set up as an independent adviser to government in April.

“Red tape and labour shortages from Brexit have exacerbated problems that are being acutely felt across production, processing, manufacturing, retail and of course logistics.”

The agenda

• 9am BST: Eurozone service sector PMI for August
• 9.30am BST: UK service sector PMI for August
• 10am BST: Eurozone retail sales for July
• 1.30pm BST: US non-farm payroll for August