CAPITAL IDEAS: Disappointing job gains in the leisure and hospitality sectors

The latest jobs report was disappointing. Only 235,000 jobs were created in August 2021, against an expectation of 720,000. Leisure and hospitality jobs had paved the way this year – until August. In the six months to August 2021, these industries created an average of 350,000 new jobs per month. Last month there were no job gains in the sectors. The decline in leisure and hospitality made August’s job gains the smallest monthly gain since January 2021.

The weakness has been attributed to the increase in COVID-19 cases. Consumer demand has declined as uncertainty about new infections increased. The cases of infection in the United States reach about 150,000 cases per day. The jobs report saw an increase of around 400,000 people who said they could not work for reasons related to the pandemic, bringing the total to 5.6 million. The reluctance of job applicants confirmed the apprehension of companies to hire new employees. Businesses have suspended hiring as hot, hot, hot economic growth has cooled to just hot.

The wave of the Delta variant is a dazzling reminder that the pandemic remains one of the most critical factors in the economy, if not the most crucial. Another important factor is that, as of June 2021, about half of US states have chosen not to collect the federal supplement of $ 300 per week for unemployment benefits. The governors of these states argued that companies were in competition with federal benefits for workers. These additional federal benefits were removed for each state on Labor Day, September 6, 2021.

Governors speculated that by eliminating the added benefit, people would go back to work. It is too early to determine whether this assumption is true or not. However, it is possible that the unintended consequence of denying these people an extra $ 300 per week has resulted in a drop in overall demand. It will be interesting to look at all the data once enough time has passed to properly measure the fallout. Not that there should be computing time; there must be sufficient time to compare the periods. However, so far economists at JP Morgan and Columbia University have found a “zero correlation” between job growth and state decisions to withdraw from federal unemployment assistance.

We don’t yet honestly know the effect of eliminating those extra $ 300 weekly payments. If the removal of additional unemployment benefits fails to get people back into the workforce, it could create a negative feedback loop. The demand for goods and services will decrease and businesses will not need to hire as many people. This risk is increased because, since September 6, 2021, the social benefits of the self-employed and the self-employed (freelancers) have been terminated. Also on Labor Day, a special consideration was waived for those unemployed for more than six months. About 8.9 million Americans will lose some or all of these benefits. By way of comparison, during the 2008 financial crisis, unemployment benefits of various forms that started in 2008-2009 were extended until 2013. When these benefits ended, 1.3 million people were still receiving a benefit. enhanced help.

There was good news from the last jobs report. Average hourly earnings increased 4.3% year over year (up 0.6% month over month). Although I would say it is not as robust as it looks since there have been no job gains in recreation and hospitality. These workers are often paid relatively less than average, so the computation of the resulting aggregate wage growth was deceptively high.

I am optimistic that there will be some control over the virus in the not-so-distant future (although it will probably seem like an eternity). This will keep a simmering hot economy. After all, employment placement firm Indeed claims there are a record 10.5 million job postings in the United States. ZipRecruiter, another investment firm, has become more nuanced and cited much more recent publications for travel, arts and entertainment, and education. When those 5.6 million people who are not working for reasons related to the pandemic eventually return to the workforce, they should theoretically find those jobs easily. However, I fear that the good news will be erased by the bad news in the rental market.

The Supreme Court overturned President Joe Biden’s attempt to extend the moratorium on evictions, which ended on September 4, 2021. Under Trump and Biden, the federal government did a horrible job of properly distributing $ 46.5 billion emergency rent assistance. Less than 11% of this money has been paid, even though 6.7 million households are in arrears with rent.

It’s hard for me to navigate emotionally. While I don’t want people to be evicted from their apartments, it is also difficult for property owners. They rely on this rental income to pay for their groceries and mortgages. Renters owe landlords about $ 17 billion. More than double that amount is in federal coffers, seemingly beyond the reach of homeowners. It is a failure of public policy.

The blame is on the past, I guess. Yet an estimated 750,000 households could now lose their place of residence by the end of 2021 after going through the court eviction process. Thousands of eviction cases are already piled up in Atlanta-area courts, ready to be processed. In New York, tenants have been waiting for rent assistance for months and are now strapped for time. Not a single dollar of federal aid was distributed in New York in early June 2021. In North Dakota, the number of eviction requests exceeds the ability of lawyers to help tenants.

When these individuals and families leave their current residence, they will have to try to find new accommodation. This could prove difficult as rental prices have increased. In June 2021, the average rent for an apartment in the 150 largest metropolitan areas in the United States was $ 1,513 per month. It was the highest level ever recorded. That’s 6.3% more than 12 months ago, when many of these people already couldn’t afford rent.

If people are re-entering the workforce, it may not be because of the elimination of the federal $ 300 supplement. Maybe it’s because the alternative is roaming.

Allen Harris is the owner of Berkshire Money Management in Dalton, Mass., managing investments of over $ 500 million. Unless specifically identified as original research or data collection, some or all of the data cited is attributable to third-party sources. Unless otherwise indicated, any mention of specific securities or investments is for illustrative purposes only. The clients of the Advisor may or may not hold the securities that are the subject of their portfolios. The Advisor makes no representation that any of the securities mentioned have been or will be profitable. Full disclosures. Direct requests: [email protected]

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