Hiring Slowed in August, but Wage Gains Accelerated

on Sep9
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The great American jobs machine is flagging, showing signs of its age and damage from an intensifying trade war with China and a slowing global economy.

The latest evidence came Friday, when the Labor Department said the economy added 130,000 jobs in August, below what analysts had expected. That number would have been considerably lower were it not for the addition of 25,000 temporary census workers.

The report was not all bleak — wages rose at a healthy clip, and people who had not been looking for work returned to the job market — but the signs of a slowdown were unmistakable. The private sector added just 96,000 jobs, a steep deceleration from earlier in the year.

The report also revised down job gains for June and July by a total of 20,000.

“We’ve lost steam — there’s no question we are slowing,” said Diane Swonk, chief economist at Grant Thornton. “We are losing momentum.”

Worries about a potential recession have mounted in recent weeks, driven by the trade war, new evidence of weaker growth in Asia and Europe, and movements in the bond market. Another negative factor is that the stimulus from the tax cut enacted in late 2017 is fading.

President Trump imposed a new 15 percent tariff on more than $100 billion worth of Chinese imports, many of them consumer goods, at the start of this month. And the administration has said an existing 25 percent tariff on $250 billion in Chinese products will rise to 30 percent in October.

After the jobs report, Mr. Trump said on Twitter that the economy was strong and blamed “the Fake News” for contributing to “uncertainty.”

Average hourly earnings increased by 0.4 percent, which is more than analysts had expected and up from a gain of 0.3 percent in July. And the length of the average workweek increased after falling in July.

The first version of the August jobs report tends to be a little weaker, only to be revised up later, said Kathy Bostjancic, chief United States financial economist at Oxford Economics. In nine of the last 10 years, the job gains for August have been revised upward, a statistical quirk caused by the return of college students to school.

“The report is less anemic than it looks,” she said.

But the report, which is based on two surveys of employers and households that sometimes offer diverging pictures of the labor market, fits the pattern of an economy that’s lost a measure of vitality recently. The recovery is now 10 years old, making it the longest period of expansion since record keeping began.

Paul Ashworth, chief United States economist at Capital Economics, said the headline number in August was “flattered” by the census hiring. “But even allowing for that, there has been a clear slowdown in trend employment growth, with the three-month and six-month averages both at around 150,000 now, down from about 230,000 a year ago,” he said.

One way to think about the economy would be to divide it into two parts: making and serving. The first covers businesses like manufacturing, mining and construction, while the other includes fields like health care, education, retailing and technology. The service economy is much larger, but goods-making sectors often point to what lies ahead. In recent months, manufacturing had paltry job gains even as service industries reported steady growth.

Mr. Trump has put goods-producing workers front and center when he describes his vision of economic growth and its beneficiaries. One wrinkle in Friday’s report is that they seem to be paying the price for his trade policies.

“The trade war is weighing on manufacturing,” said Torsten Slok, chief economist at Deutsche Bank Securities. “The tariffs are only on goods, and goods equal manufacturing.”

In August, factories added just 3,000 workers, while mining and logging lost 5,000 jobs. On the service side, education and health category experienced a gain of 32,000 and employment in professional and business services was up 37,000.

A key measure of manufacturing showed this week that the sector was contracting. Factories have been facing headwinds for months from the trade war and slowing global growth.

A parallel survey of the service sector published on Thursday presented a much healthier picture.

Why are factories so sensitive to the tariff issue and economic growth abroad? They export a larger share of their products than other businesses do, and are highly dependent on suppliers overseas. They feel the bite of tariffs right away and can’t easily alter their supply chains.

“The trade effects are flowing through the economy,” Ms. Swonk said. “The first shoe to drop has been manufacturing, and we do know they will hit the service sector next. They snowball over time.”

She added that she was worried economic growth would fall below the 2 percent rate in the third quarter, after a stronger showing in the first half of the year.

For the first time in a decade, the Fed cut its benchmark interest rates in July, by a quarter of a percentage point. Analysts expect the central bank to cut the rate by another quarter-point when policymakers meet in two weeks.

Friday’s report strengthens the case for a rate cut this month, although it wasn’t weak enough to suggest that the policymakers will go for a half-point reduction as some traders had thought.

“After September, we expect additional rate cuts in October and December as the downside risks are increasing,” Ms. Bostjancic of Oxford Economics said.

In part, she said, the rate cuts are intended to compensate for the tariffs’ anticipated drag in 2020. She estimates that tariffs will reduce economic growth by more than half a percentage point next year.

Musgrave Pencil Company has been feeling the pressure from tariffs, but it has nevertheless been hiring. Musgrave, which is based in Shelbyville, Tenn., would like to add at least five workers to its assembly line, said Henry Hulan, the company’s chairman and a grandson of its founder.

“We’re 50 miles south of Nashville, where there’s distribution centers, auto plants and hospitals, so there’s stiff competition to find workers,” Mr. Hulan said. Entry-level jobs at Musgrave pay $10 an hour, an increase of $2 from a year and a half ago.

“We don’t have any educational requirements — no degrees or anything,” he said. “We’re just looking for someone who is hard-working. It’s hard to pay much more when you’re competing with Indonesia and China.”

One of only a handful of American pencil makers left after foreign competition drove many others out of business, Musgrave has been operating for 103 years. It has a work force of more than 90 who turn wooden slats and graphite into pencils.

In theory, Musgrave should benefit from 15 percent tariffs that went into effect on Chinese-made pencils on Sept. 1. But Musgrave has also been hurt by the Trump administration’s tariffs on components. Although China is just one source for wooden slats, the Chinese supplies now carry a tariff of 29.3 percent, up from 4.3 percent before the trade war.

“It’s too early to say if the new tariffs will help us,” Mr. Hulan said, referring to the tariff on pencils. “But the other tariffs have definitely hurt us.”

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