U.S. hiring slows sharply amid delta, complicating Fed taper

U.S. hiring downshifted abruptly in August with the smallest jobs gain in seven months, complicating a potential decision by the Federal Reserve to begin scaling back monetary support by year end.

Nonfarm payrolls increased 235,000 last month, trailing all forecasts, after an upwardly revised 1.05 million gain in July, a Labor Department report showed Friday. Employment in leisure and hospitality, which has posted strong gains recently, was flat amid the spreading delta variant and persistent hiring challenges.

The unemployment rate fell to 5.2% from 5.4%.

The median estimate in a Bloomberg survey of economists was for a 733,000 monthly advance in August. The yield on the 10-year Treasury note rose, while the dollar fell and the S&P 500 opened lower.

The deceleration in hiring likely reflects both growing fears about the rapidly spreading delta variant of Covid-19 and difficulties filling vacant positions. In August, 5.6 million people reported they were unable to work because of the pandemic, up from 5.2 million a month earlier, the Labor Department said.

The surge in infections, which has already curbed consumer activity and disrupted in-person schooling and return-to-office plans, may have led businesses to grow more cautious about hiring and dissuaded some workers from pursuing high-contact employment opportunities.

The latest figures have the potential to limit calls for the Fed to start tapping the brakes on its monetary stimulus. The report could also bolster President Joe Biden’s push for trillions of dollars in long-term social spending, after West Virginia Sen. Joe Manchin, a pivotal Democrat, this week demanded a “strategic pause” on the plan.

Employment in leisure and hospitality was flat in August, held back by a 42,000 decrease in payrolls at restaurants and bars. Retail trade, construction, government and health care employment also declined last month.