Payrolls rose by 130,000 last month and the unemployment rate held at 3.7 percent, close to a 50-year low and the same level as the past 3 months. Still, job growth is cooling (25,000 of this month's gains were temporary decennial Census workers), as the pace of monthly gains, while still strong enough to support low unemployment, has slowed. Wage growth also stayed parked at about where it has been in recent months, and there's some evidence that the trade war is taking a toll on factory jobs. However, the job market remains strong, real wages are growing, and consumer spending will continue to be supported by these dynamics.
The slowdown in payrolls
To get a clearer take on the underlying trend in job growth, our monthly smoother shows the average monthly gain over 3, 6, and 12-month periods. This month, however, we add an extra bar to our usual smoother, as we believe it is important to begin to incorporate a recent BLS revision, based on more accurate jobs data, into our assessment of the US job market. This preliminary benchmark revision estimates that employers added 500,000 fewer jobs to US payrolls between April of 2018 and March of 2019 (BLS will officially wedge their final estimate into the payroll data by Feb 2020). The second bar includes the result of this revision, showing that over the past year, payroll growth was likely closer to 150K per month than 175K per month.
To be sure, this is still solid payroll growth at this stage of the expansion and as noted below, in tandem with real wage growth, it's strong enough job growth to support the recovery and keep unemployment around where it is. However, using the preliminary revised data, the pace of payroll gains has slowed from 1.6% last year to 1.3% this year. Clearly, that's not a big deceleration, and it's also not unexpected in a job market closing in on full employment. But it is a slower trend which I expect to persist.
The trade war
The trade war that the Trump administration has been waging is clearly taking a toll on the global economy. While its impact is greater in countries more exposed to trade, like Germany, than the US, our manufacturers have been hit by these new taxes (tariffs) on their imported inputs and by retaliatory tariffs on their exports. To what extent is this showing up in factory employment, hours, and wages?
Manufacturing employment has slowed since the Trump administration began ramping up tariffs at the beginning of last year. Last month, factory jobs rose just 3K and durable manufacturing employment was unchanged. Thus far this year, the factory sector has added 5.5K jobs per month on average, compared to 22K for all of last year.
The product of manufacturing employment and weekly hours yields the aggregate hour index for the sector, a very good proxy for labor demand. The next figure looks at the year-over-year change in this index for blue collar and for all manufacturing workers. Starting about a year ago, a clear deceleration is evident, and for the non-managers—who comprise about 70 percent of the sector's employment—total hours worked have outright declined in recent months (relative to a year ago).
After slowing in 2018, manufacturing wages for blue-collar workers have picked up pace in recent months and are now growing at about the same rate of other mid-level workers.
In sum, at least in terms of jobs and hours, the trade war is hurting manufacturing workers. I'm sure some will push back that this near-term pain is worth the longer-term gains from a "victory" in the trade war. I find this totally unconvincing, as victory apparently means getting China to be more accommodating to US multinationals. That is, were China to stop insisting on tech transfers, or issue more licenses to our multinationals, we'll get more, not less, offshoring of US jobs.
Wages still stalled
Wage gains are still stalled, though at a level above inflation, so real paychecks are growing on average (see third figure below). The stalling is clear in the 6-months rolling average, and is not particularly surprising as the job market has not particularly tightened further over this period. That is, low unemployment is providing workers with more bargaining clout than they'd have in less tight job markets, but this force appears to be holding steady for now.
Stronger Household Survey
Participation ticked up and the closely watched employment rate for prime-age workers (25-54) hit a cyclical high of 80%, just 0.3 ppts below its 2007 peak. While we can't say much about one month's change, this important measure of core labor market capacity had previously been stalled. If it continues to rise, it will suggest there's still more room-to-run in the job market, and especially given low inflation, a strong rationale for the Federal Reserve to do what they can to extend the run.
Bottom line, the job market will handily support consumer spending in the near term, staving off any recessionary threats from the trade war and the global slowing to which it has contributed. However, payroll gains have slowed somewhat, especially in manufacturing, and, I suspect, in any other sectors with global connections (i.e., tradeable goods and services). We will continue to monitor this and any other fragilities related to the trade war or whatever other unforced policy errors are forthcoming.
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