The government’s latest monthly jobs report took on added significance after a week of otherwise disappointing economic news.
By guest author Patricia Cohen from New York Times
136000 jobs were added last month, the government reported on Friday. Analysts surveyed by MarketWatch had expected a gain of about 147000.
The unemployment rate was 3.5 % , the lowest in a half century and down from 3.7 % the month before.
Average hourly earnings were little changed after growing by 0.4 % in August. The year-over-year gain was 2.9 % .
The cavalcade of payroll gains continued for the 108th month in September, pushing down the jobless rate to a 50-year low and countering anxieties that had been piqued by slowing global growth, declining factory orders and a jittery stock market.
The government’s latest monthly jobs report took on added significance after a week of otherwise disappointing economic news. Manufacturing activity in the United States fell for the second month in a row, while the World Trade Organization predicted that the growth in global trade would slacken significantly. A key measure of activity in the services sector — which accounts for two-thirds of the country’s output — also cooled.
Still, employers kept hiring at a steady if unremarkable pace.
“It is great news to hit a record low on unemployment,” said Diane Swonk, chief economist at Grant Thornton, but noted that “the disappointment was wages.”
Clearly, the economy’s employment engine has lost some of its spark. Last year, an average of 223000 jobs were created each month, thanks in part to the temporary pick-me-up delivered by tax cuts and increased government spending. This year, the monthly average through September is 161000.
That falloff alone is not cause for alarm. A decline was expected now that the recovery has passed its 10-year anniversary, and there are more job postings than job seekers. The unemployment rate has remained below 4 % for the last seven months. And many Americans who had dropped out of the labour force because they were too discouraged to look for work or couldn’t find sufficiently attractive offers have now rejoined.
Still, the jobs report contained enough conflicting data that optimists and pessimists could find evidence to support their outlook. [Analysis from The Upshot: Jobs numbers for the optimists, the pessimists, and everybody in between.]
Carl Tannenbaum, chief economist at Northern Trust, described the latest report as reassuring. “All of us have been on edge a little bit with declines on readings in the service sector, fearing that the trade problems would jump the fence from heavy to lighter industries,” he said.
Friday’s October 4, 2019 report revised job figures for July and August, adding a total of 45000. “We’re on a three-month track of over 150000 jobs per month, and that says to me that the economy is still expanding well,” Mr. Tannenbaum said.
The report amounted to something of a bright spot for investors, after the S&P 500 had fallen more than 2 % in the first three days of October. The index was up about 0.5 % Friday morning. Bond prices fell, pushing yields – which move in the opposite direction – slightly higher.
Other analysts, though, focused on President Trump’s continued trade feud with China, which has roiled financial markets and pinioned business investments.
Torsten Slok, chief economist at Deutsche Bank Securities, was unconvinced that the slowdown was the natural byproduct of an economy at full capacity. “The problem with that story is that wage growth dropped quite significantly,” he said. “Trade uncertainty is why we’re seeing a jobs slowdown and why the wage numbers are slowing.”
Mr. Trump set off another retaliatory volley last month by increasing tariffs on consumer goods coming into the United States from China and threatening to extend those to even more products.
When Mr. Slok saw that the new export orders had declined recently, he said: “I almost fell out of my chair. That can only be driven by trade.”
“The economy is still doing O.K.,” he said. “But the uncertainty from the trade war continues to be a cloud. Manufacturing is certainly is trouble.”
The Commerce Department reported on Friday that the trade deficit increased modestly to $54.9 billion in August.
Mr. Trump has repeatedly placed the manufacturing sector at the centre of his economic strategy. Nonetheless, that sector is suffering the most from prolonged trade tensions. Companies in the business of making goods — as opposed to those that deliver services like hospitals and restaurants — are much more dependent on sales to other countries and supply chains that wend around the globe.
The sector lost 2000 jobs in September. Last spring, manufacturers were adding as many as 25,000 jobs a month. In recent months, the average has been a few thousand. (The United Auto Workers’ strike against General Motors began after the government completed its survey of employers, and therefore, is not reflected in September’s figures.)
But Becky Frankiewicz, president of ManpowerGroup North America, a staffing firm, is not convinced that trade friction is responsible for that drop.
“The number of manufacturing jobs we have open outpaces the number of candidates,” she said. “It’s become more difficult to fill a job in the last four months,” she added.
Banner Metals, a tool-and-die maker in Columbus, Ohio, plans to add three people to its 40-person staff next year. “Our business has not slowed down in any way,” said Bronson Jones, the chief executive and a part-owner. “We’re actually growing.”
With less than 13 million workers, the manufacturing sector accounts for about 11 % of the country’s output, but it tends to loom larger when it comes to policy debates.
The health and education sectors remain the economy’s most potent job creators. And wage growth over all has picked up in recent months, putting more money in consumers’ pockets. As long as Americans continue to spend, the economy will keep humming.
But, economic confidence can be fickle. Worries about tariffs and the general direction of the economy are spooking those outside the manufacturing sector, according to the Institute for Supply Management, which conducted the survey of service businesses.
Tom Gimbel, chief executive of LaSalle Network, a staffing firm in Chicago, said, “What I’m hearing is different from what I’m seeing.” With so much uncertainty, some chief executives say they are afraid of having too much capital invested in their business.
“But what I’m seeing is that people are still hiring,” he said. His firm’s revenue, he said, is up 15 % from last year, and placements are up 8 % . Workers for supply chain, technology and back-office health care jobs are particularly in demand.
The global accounting firm EY, formerly Ernst & Young, plans to hire 15000 workers by the end of July, said Dan Black, global recruiting leader.
“There’s a lot of signals of a slowdown,” he said, “But we continue to be very bullish on hiring here.”
Applicants talked to recruiters last month at a job fair in Miami for people 50 or older. Monthly hiring has slowed this year, but the labour market remains tight.
The Political Implications
Mr. Trump celebrated the record low jobless rate, while taking a swipe at his critics.
The president’s trade strategy has support from some sectors that embrace his get-tough approach – even if they are suffering from the fallout. But, several industries and small businesses are worried.
Adam Briggs, vice president for sales and marketing for Trans-Matic, a precision metal stamper in Holland, Mich., said the family-owned firm is feeling the strains of the tariffs and a slowing economy. “We’re struggling, but our customers are struggling with it too.”
Last year, the company employed more than 300 people in Holland. That number is down to 275, through a combination of attrition and voluntary separations, Mr. Briggs said.
Unpredictability disquiets business managers and markets. “Anything that relates to uncertainty is not good for business and household spending, said Ellen Zentner, chief United States economist at Morgan Stanley. And, trade tensions — as well as the political turmoil surrounding Mr. Trump as congressional Democrats pursue an impeachment inquiry — fuel uncertainty, she said.
Politics is something that Chris Murphy, managing director of ThoughtWorks, a global software and digital transformation consultancy, rarely talks about with clients. The one exception? “The uncertainty created across industries by the trade war in China,” he said. “People are keen to see it resolved and go away sooner rather than later.”
The Federal Reserve
The September reading from the Labour Department is the last monthly report to be released before Federal Reserve officials meet on Oct. 29 and 30.
Because Fed officials have split on the need for another rate cut, the employment report could be more pivotal in the decision than usual. Jerome H. Powell, the Fed chair, has noted that the labor market and consumer spending are the two strongest parts of the economy.
On Wall Street, expectations that the central bank would pare borrowing costs for a third time this month have been building this week as news about slowing growth rolled in.
The Fed’s vice chair, Richard Clarida, said on Thursday evening that the central bank would “act as appropriate to sustain a low unemployment rate, solid growth and stable inflation.” He added, “We said that in June, July and September, and I’m saying it to you tonight.”