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Key Points for the Week

  • U.S. job creation slowed dramatically last month as only 235,000 new jobs were created.
  • Emergency unemployment benefits expired for 7.5 million people.
  • New auto sales declined 10.7% in the face of chip shortages.

Stagflation is a combination of ‘stagnation’ and ‘inflation.’ It occurs when a country experiences slow economic growth along with high inflation and high unemployment. In the United States:

  • Economic growth was strong during the second quarter: 6.5 percent year-over-year, according to the Bureau of Economic Analysis. However, some forecasts for third quarter’s economic growth have been revised downward. Economists at one large investment bank lowered their estimate from 9 percent to 5.5 percent, reported Lindsay Dunsmuir of Reuters.
  • Inflation is the rise in prices over time. The Federal Reserve prefers to measure the rise by looking at median Personal Consumption Expenditures (PCE) inflation. Median PCE was up 0.29 percent from June to July 2021, and up 2.2 percent over the past 12 months. The Federal Reserve’s target for inflation is 2 percent.
  • Employment showed a solid increase in August, although the gains were less robust than many expected. Unemployment ticked lower (5.2 percent), the labor force participation rate remained unchanged (61.7 percent), and average hourly earnings ticked higher ($30.73).

The culprit blamed for this slowing growth, rising prices and recent unemployment levels is COVID-19. The spread of the Delta variant created a new wave of parts and labor shortages. Demand for goods is rising as many people appear to be less concerned about the virus. Shortages of goods coupled with high demand for those goods have pushed prices higher.

The Economist reported that the Delta variant, “…looks like a stagflationary force that is sapping growth less dramatically [than the original COVID-19 strain] but firing up inflation. Delta is weighing on consumer spending in the rich world but not causing a collapse. In countries with lots of vaccines, cases are no longer doing as much to stop consumers from moving around.”

This Week in the Markets

The U.S. economy produced just 235,000 new jobs in August, missing earlier year expectations of 725,000. Unemployment dipped to 5.2%. Average hourly earnings rose 0.6%, partly because wages continue to rise more rapidly compared to the pre-pandemic pace.

Enhanced unemployment benefits and programs targeting the self-employed expired on September 6. Approximately 3.3 million workers were receiving extended benefits, and 4.2 million gig and self-employed workers lost COVID-related benefits.

U.S. new auto sales declined 10.7% compared to the previous month and are now 14.4% lower than last year. Chip shortages, plant shutdowns, and potential demand risk are also pressuring the industry.

Stocks took the jobs data and other challenges in stride. The S&P 500 and MSCI ACWI both gained, while the Bloomberg U.S. Aggregate Bond Index dipped slightly. August was an excellent month for stock investors.

What Does Wave Power Look Like?

If your neighbor mentioned wind energy, you might picture a towering turbine planted in a field or rising offshore. If a friend talked about a solar farm they saw while on vacation in Colorado, you might picture acres of solar panels angled to catch the sun’s rays. Waterpower often brings hydroelectric dams to mind.

What do you picture when asked about wave power?

Almost three-fourths of the Earth is covered by water. Tides surge and retreat. Wind blows waves across the tops of oceans and lakes. Freshwater and marine life drift on currents.

Water generates a lot of kinetic energy.

When it comes to renewable energy, waves have other resources beat in two respects. First, unlike solar, waves offer a consistent energy source regardless of time of day. Second, waves provide much greater energy density than wind due to water’s heavier mass.

Mary Beth Gallagher, MIT News

Despite its potential, wave energy lags far behind in the race to develop renewable energy sources. While diverse methods for capturing wave energy have been developed, none have become widely used. As a result, when wave power is mentioned, nothing in particular may come to mind.

That may change soon. This month:

…researchers will float a yellow platform out into the waters of the Pacific Ocean, north of the Hawaiian isle of O’ahu. It’s not just there to roll upon the waves…if all goes well, it’ll turn those very waves into electricity…Wave energy could, for instance, charge up the buoys that landmark the sea. It could power the desalination plants that make seawater drinkable, potentially providing life-sustaining hydration to places like islands that need it most. It could help make aquaculture more sustainable. And it could power electric vehicles at sea.

Rahul Rao, Popular Science

Will a yellow and black cylinder bobbing in the ocean become the symbol for wave energy?

A Varied Report

The Details

The Delta variant is sapping momentum from the U.S. recovery. Nonfarm payrolls rose just 235,000, which was well below expectations for 725,000 jobs created. The unemployment rate fell from 5.4% to 5.2%. The big miss had a similar feel to the April report, when expectations were even higher and a similar number of jobs was created.

Weak job creation in the service sector contributed to the sluggish report. The service sector only created 203,000 jobs, lagging each of the previous two months by more than 500,000 jobs. Restaurant hiring dropped sharply as the leisure and hospitality industry reported flat employment. Between April and July, leisure and hospitality accounted for 61% of the gains in private payrolls.

The goods sector performed much better. Manufacturing added 37,000 jobs, construction contracted by 6,000 jobs, and mining grew by 3,000 jobs. The net gain of 40,000 was in line with previous months. Increased hiring by auto manufacturers helped push manufacturing employment higher and may signal some improvement in the number of semiconductor chips available for vehicles.

The Delta variant affected other data as well. The percentage of remote workers ticked higher to 13.4%, the first increase since the COVID surge in the fourth quarter of 2020. Average hourly earnings rose 0.6% in August as businesses used higher wages to lure workers back to serve customers. Wages in the leisure and hospitality industry increased 0.7%.

The Big Picture

The U.S. economy needs to create about 150,000 jobs each month just to absorb new workers entering the labor force. That means an economy still bouncing back from COVID only employed a net 85,000 existing workers. Considering there are still 5.3 million fewer people employed than prior to the pandemic, getting only 1.6% of those workers rehired means the economy will take longer to heal if this trend continues.

Containing the Delta variant is the most important task to reigniting the jobs recovery. The Delta variant suppressed demand in certain places, but it also kept some potential workers outside the labor force.

Our expectation is hiring will pick up in coming months. Enhanced unemployment benefits have now expired. This will provide some people with greater incentive to take jobs, although we expect this effect to be gradual rather than immediate.

Underlying some of this data is a lower emphasis on work. Given the health risks in some positions, people may not view the higher wages as enough compensation for the risk. Labor force participation remained at 61.7%. Younger workers may be choosing to forgo part-time work to reduce health risks. Based on the prevalence of help-wanted signs at many fast-food restaurants, people who normally took these positions seem less interested. Whatever the reason, more hiring and willing workers are both necessary to return the economy to growth.

Did you Know? This Week in History

September 7, 1813: United States Nicknamed Uncle Sam

On September 7, 1813, the United States received its nickname, Uncle Sam. The name is linked to Samuel Wilson, a meat packer from Troy, New York, who supplied barrels of beef to the United States Army during the War of 1812. Wilson (1766-1854) stamped the barrels with “U.S.” for United States, but soldiers began referring to the grub as “Uncle Sam’s.” The local newspaper picked up on the story and Uncle Sam eventually gained widespread acceptance as the nickname for, and personification of, the U.S. federal government.

Perhaps the most famous image of Uncle Sam was created by artist James Montgomery Flagg (1877-1960). In Flagg’s version, Uncle Sam wears a tall top hat and blue jacket and is pointing straight ahead at the viewer. During World War I, this portrait of Sam with the words “I Want You For The U.S. Army” was used as a recruiting poster. The image, which became immensely popular, was first used on the cover of Leslie’s Weekly in July 1916 with the title “What Are You Doing for Preparedness?” The poster was widely distributed and has subsequently been re-used numerous times with different captions.

In September 1961, the U.S. Congress recognized Samuel Wilson as “the progenitor of America’s national symbol of Uncle Sam.” Wilson died at age 87 in 1854, and was buried next to his wife Betsey Mann in the Oakwood Cemetery in Troy, New York, the town that calls itself “The Home of Uncle Sam.”

Weekly Focus

The cure for boredom is curiosity. There is no cure for curiosity.

Dorothy Parker, Poet and Writer

That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.

Aldous Huxley, Writer and Philosopher