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Why July’s Payroll Increase Only Tells Part of the Story: Week Ahead

Wall Street might be cheering too soon over Friday’s upbeat nonfarm payroll report for July from the Labor Department.

The U.S. Bureau of Labor Statistics said that total nonfarm payroll employment rose by 943,000 in July, bringing down the unemployment rate by half a percentage point to 5.4 percent. and the number of unemployed persons declining by 782,000 to 8.7 million. Job gains occurred in “leisure and hospitality, in local government education and in professional and business services,” the Labor Department said, noting that retail lost 6,000 jobs.

Investors cheered and gave their thumbs up, sending two key stock indices—the S&P 500 at up nearly 0.2 percent, or 7.42 points to close at 4,436.52, and the Dow Jones Industrial Average at up 0.4 percent, or 144.26 points to close at 35,208.51—on the positive report since the consensus from economists was an expectation of just 845,000 jobs. Retail shares joined in on the party, with most fashion and retail stocks posting gains too.

July’s nonfarm tally included a revision for June, with the gain now at 938,000 jobs.

The Labor Department’s report doesn’t exactly jive with Wednesday’s private payroll data report from ADP. ADP data indicated that the private employment sector added just 330,000 jobs from June to July, below the 680,000 added in June. The two reports don’t always track along similar lines. And while the two employment figures for July were worlds apart, the fact that leisure and hospitality was the fastest growing sector for job creation was a common thread of the two reports.

So, do investors have a reason to cheer? Maybe not, given the current pandemic climate.

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July’s gains suggest a positive environment for jobs creation, but the report doesn’t include the bulk of the current rise in Covid-19 cases in August thus far. The Delta variant has been increasing since June, driving an average number of daily cases at 13,500 to its current rate of 100,000 in August. What that means for fashion and retail remains to be seen.

Back-to-school sales, particularly apparel, has benefited from the first installment of the federal government’s Child Tax Credit. And now retailers are gearing up for the peak shipping season that begins in August for the upcoming holidays. The hope is to get goods sooner than later in case of additional shipping delays, or other shutdowns due to the Delta mutation. On its heels is the Lambda variant that appears to have originated in Peru.

The increase in cases is causing new concern. The Centers for Disease Control now recommends that people wear their masks indoor again, even for the vaccinated. And in New York, the tally of new Covid cases crested 3,000 cases on Tuesday, with hospitalizations hitting nearly 1,000 daily.

New York City on Wednesday became the first U.S. city to mandate proof of vaccination for certain indoor activities. So far, retail stores are not included, but could be if the program expands.

And Los Angeles could be next. City Council President Nury Martinez was joined by council member Mitch O’Farrell on Wednesday to introduce a proposal that could require similar proof of vaccination for entry to certain indoor venues. City leaders will have to take up the proposal, which also applies to stores.

Meanwhile, a new policy requires certain federal workers to get vaccinated, with some exclusions. Some cities and states now mandate that their employees either show proof they were vaccinated or submit to weekly testing. And some private employers are also requiring that their workers get their shots. The requirement could present a problem for an already pressured labor force, when employers are having a time getting warm bodies in fill open positions.

And should the new spike in Covid cases increase even further, the potential for new lockdowns could further pressure the labor front and cause more grief for retailers.