The most notable thing about this morning's big jobs report miss was the sudden stop in hiring in the leisure and hospitality sectors.
Literally, those sectors had "unchanged," i.e., zero, net jobs added after adding 350,000 per month on average in the six months prior. There are still 1.7 million "missing" jobs if you compare total employment in those sectors to where it was pre-pandemic. (Interestingly, that's only a third of the total job loss of 5.3 million from pre-pandemic levels.)
Here's my point, and the central question: did hiring stop because the delta variant slowed demand, or because wages in those sectors aren't high enough to increase the worker supply?
If the delta variant slowed demand, then we have a macro slowdown story. The kind of economic slowdown that, if it gets bad enough, typically engenders calls for fiscal and/or monetary support (like we saw in 2020). The kind of slowdown that should delay the Fed's tapering, which now seems widely expected.
But wait–if we have a "wages aren't high enough story," that is the opposite of a macro slowdown. That is macro strength! When recessions hit, wages often decline. Workers lose bidding power. No one holds out for higher pay–they take whatever they can get to make sure they can still put food on the table.
And if we have macro strength right now–if in fact, workers have gained bidding power, if we're about to lose Oreos and Ritz crackers because Mondelez workers have gone on strike–that's a totally different story. The Fed should obviously not be cutting rates or buying bonds to ease financial conditions and lower interest rates.
Economist Brian Bethune, for instance, thinks supply constraints–labor, but also parts delays and shortages–are slowing GDP by about two full points right now. I have no idea what kind of "policy response" would address that in the near term. Obviously building out semiconductor factories isn't going to happen in time for Christmas.
Has fiscal policy–stimulus and boosted jobless benefits–actually given workers more bargaining power than they would otherwise have right now? Perhaps, although so far, the expiration of boosted benefits in many states this summer doesn't appear to be a major catalyst in nudging people back into the workforce. Then again, economists say the child tax credits may be offsetting that need somewhat.
I was listening to a podcast with Jeremy Grantham of GMO the other day, and he noted the longstanding stagnation in real U.S. wages. Basically, he thinks we have a lot of room to grow. (Many others agree.) He's also been warning that stocks are overvalued, and obviously a higher profit share going to employee compensation is a risk to corporate profits. For now, companies have been largely able to pass along higher costs in the form of higher end prices–none of which fits the theme of a "macro slowdown" story.
That said, I don't buy that hiring stopped in leisure and hospitality last month because wages weren't high enough. I think it's pretty obvious that delta slowed demand for those services–just look at how airline fares have been falling. This all smacks to me of a temporary demand (i.e. macro) slowdown in a larger macro-strength story. Punting the taper a month or two could make sense from that point of view. But it certainly isn't the whole story.
See you at 1 p.m!