Job growth is slowing in the trade war, but that may not be clear in Friday’s payroll data
The trade war is taking its toll on the job market, but the trend may not be so clear in Friday’s employment report as GM workers return to their jobs following a strike.
Even as the U.S. grew sluggishly in many of the years since the financial crisis, the labor market has been a pillar of strength. It now looks to be locked into a slower rate of growth, though still plenty strong to support the economy.
According to Dow Jones, economists expect 187,000 jobs in the government report Friday, up from 128,000 in October. Refinitiv’s survey for November payrolls shows a consensus of 180,000 nonfarm payrolls.
Strategists now see some downside potential for those forecasts, following ADP’s report Wednesday on private sector payrolls for November, which increased by just 67,000. The payroll number was well below the expected 150,000, and was the slowest growth since May.
The surprise weakness in the ADP number was due in part to a loss of 18,000 goods-producing jobs that were from natural resources, mining, construction and manufacturing.
Trade, transportation and utilities, usually a robust sector, declined by 15,000, and information services fell by 8,000. Small business was also hit, with a decline of 15,000 workers in businesses with fewer than 20 employees.
“The fact that job creation slowed ‘across all company sizes’ in the ADP panel also indicates some underlying weakness in November job growth,” wrote Goldman Sachs economists.
Grant Thornton chief economist Diane Swonk expects 175,000 payrolls in Friday’s November jobs report, and she’s not changing that based on ADP’s disappointing number, which is not viewed as a consistent barometer for government payrolls.
“Both the ADP and the payrolls have been slowing since last year,” said Swonk. “We think that is the important take away.”
Swonk said roughly 48,000 GM strikers and 12,000 workers who were laid off during the GM strike are expected to have returned to payrolls during November. There is additionally a drag from 12,000 government census workers who were no longer needed.
Without the GM workers, the number is consistent with the slowdown in job growth this year versus last year. In 2018, monthly job growth averaged 223,000, compared with 168,000 this year through September, she said. Swonk said she took Census workers out of the equation in 2019 and did not include the data for October, which was skewed by the GM strike.
“The largest tranche of that slowdown was due to trade alone,” she said. “The most conservative estimate we make is that 30 percent is trade-related losses alone. Then we get another tranche of losses mainly due to retail, representing the move from in-store to online. That’s another 12% to 15% of the losses. Retail employment peaked in 2017.”
She also sees other factors, including a shortage of workers in some sectors.
Mark Zandi, chief economist at Moody’s Analytics, which releases the payroll report with ADP, said the job market is losing its “shine.”
“The slowdown is more significant than I would have thought, and I do think that goes to the trade war,” Zandi said on a conference call. “The trade war is doing damage to the economy and the jobs market.”
NatWest Markets economists expect job growth of 200,000 in Friday’s November report, but without the GM strikers returning it would be closer to 155,000.
“That’s pretty close to the trend I think,”‘ said Kevin Cummins, NatWest senior U.S. economist. He also expects the unemployment rate to remain at 3.6%.
“It seems like things are slowing down over all. It’s hard to actually capture the trend and have too much conviction about it. It feels like that’s about where it is,” Cummins said. He added that the trend could even slow to about 100,000 jobs a month next year.
He said trade has made an impact but it’s unclear how much. “The trade conflict with China isn’t likely to go away anytime soon. Even if this phase one [trade agreement] does happen, the uncertainty is going to be replaced by the presidential election,” said Cummins.
Cummins said there are other indications the labor market is slowing, including the Conference Board index. In its survey, about 12.7% saw jobs hard to get in November, up from 11.5% in October.
He also pointed to the slowdown in job openings. The Bureau of Labor Statistics reported that job openings fell to 7 million on the final day of September, a decline of 277,000 .
“It seems like some of the caution in business investment is starting to show up in the labor market,” he said.
Cummins said he expects GDP growth next year of just 1.5%, and he is forecasting the slowing economy will prompt the Federal Reserve to come off the sidelines and cut interest rates two more times.