Private American companies hired just 374,000 more workers in August, according to payroll services firm ADP, as the Delta variant of Covid-19 undermines the job market's recovery.

The modest gain was a slight increase over July but far less than economists had expected.

The data "has highlighted a downshift in the labor market recovery," ADP chief economist Nela Richardson said.

"We have seen a decline in new hires, following significant job growth from the first half of the year."

The report is closely scrutinized as a preview of the critical government employment data due out Friday, which is expected to show a gain of 750,000 jobs nationwide last month and the unemployment rate ticking down to 5.2 percent from 5.4 percent in July.

US companies hired about half as many workers as expected in August, according to data from payroll services firm ADP
US companies hired about half as many workers as expected in August, according to data from payroll services firm ADP AFP / Olivier DOULIERY

ADP can differ widely from the official report, but Ian Shepherdson of Pantheon Macroeconomics said he has now trimmed his forecast, predicting employment will rise by just 400,000 positions due to Delta.

"We expect a further Delta hit in September, though we hope it will be offset, at least partly, by the effects of school reopening and the ending of enhanced unemployment benefits. But the uncertainties are huge," he said.

The surge in infections due to the new variant has hit the leisure and hospitality sector especially hard, as mask mandates have been reimposed in some areas, but the industry added 201,000 positions last month, improving on July.

Mark Zandi, chief economist of Moody's Analytics, which is involved in producing the ADP report, said the Delta variant "appears to have dented the job market recovery."

"Job growth remains strong, but well off the pace of recent months," he said.

Coronavirus