Hiring slowed sharply in August as a new surge in coronavirus infections slammed the brakes on the economic recovery.
U.S. employers added just 235,000 jobs last month, a sharp slowdown from the torrid pace of hiring in June and July.
"The labor market recovery has downshifted," said Nela Richardson, chief economist for the payroll processing company ADP. "The U.S. economy is facing increasing headwinds as the pandemic wears on and the delta variant creates uncertainty."
The unemployment rate fell to 5.2% in August from 5.4% in July.
Confirmed coronavirus infections have jumped nearly 20% in the last two weeks, while COVID-19 deaths have nearly doubled during that period. The worsening public health outlook threw a late-summer speed bump in the recovery, making people more cautious about traveling and eating out and reducing the need for workers.
Restaurants and bars cut 42,000 jobs in August after adding 253,000 in July.
Retailers cut 29,000 jobs last month.
Homebase, which makes scheduling software for small businesses, saw a notable decline in hours worked last month — especially in the entertainment and hospitality industries.
"We are hearing anecdotally from our customers that absolutely it is a result of COVID," Homebase CEO John Waldmann said. "We are seeing similar trends in the data from what we saw last year and January of this year. It would be hard-pressed to say this is not COVID-related."
The slowdown in the Homebase data was particularly pronounced in the Southeast, where COVID-19 cases are especially high. New England, where case counts are lower, fared somewhat better.
The spike in new cases has also discouraged some people from returning to work. And it threatens to disrupt in-person schooling, which could make it harder for parents to hold down jobs.
"All of us who care about small businesses really wanted to be optimistic that a lot of the things keeping people from work were going to start to heal themselves into the fall," Waldmann said. "Unfortunately, it looks like we're going to be dealing with challenges here for a little bit longer."
The slowdown in hiring comes just as emergency unemployment benefits that Congress authorized earlier in the pandemic are about to expire. In mid-August, more than 12 million people were receiving some form of jobless aid. Most will receive their final payments next week.
Warehouses and delivery services added 53,000 jobs last month — as the online retail business continues to expand.
Manufacturing is another bright spot in the economy, with new orders and output both accelerating in August. But factories continue to struggle to find enough parts and workers.
Factories added 37,000 jobs last month, up from 27,000 a month earlier.
"Companies want to hire more people," said Tim Fiore, who oversees a monthly survey of factory managers for the Institute for Supply Management. "There's no doubt that demand is calling for more people, and they can't get them."
Fiore said many factories are facing increased turnover as workers depart for higher wages elsewhere.
Wages have been rising, especially in restaurants and hotels. But prices have been climbing, too, eroding workers' buying power. Private sector wages in August were up 4.3% from a year ago. But they are not keeping pace with inflation, which was 5.4% in July — matching the highest rate in nearly 13 years.
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