August Jobs report offers a mixed bag for US economy

For those that were looking for a significant increase in the August 2019 Jobs report,  from the U.S. labor department, it was beneficial to know that the dismal results of 130,000 is subject to revision, as has been the case for the last nine out of ten years.

There is nevertheless “Joy in Mudville” as economists, bankers and labor have praised the stable rate growth, or to be more accurate,  a pattern of steady, if not spectacular, growth, and indeed, this has been the case for months, as we see that low wages, not a typical characteristic of an economic resurgence, after a long depression; but there are those observers that see the 3.2 percentage wage “growth” as a bellwether fact, of unparalleled economic success; yet, that is something that even the hardiest of economists are dismissing.

That growth was 0.4 percent, and some, more optimistic market watchers, like Neil Irwin, writing for The New York Times, said, this is  “suggesting that employers are having to pay up to attract those workers. Over the last year, average hourly earnings were up 3.2 percent, which is something of a sweet spot: Pay is rising faster than consumer prices are, meaning American workers’ incomes are rising, yet not so fast as to raise alarm bells about inflation at the Federal Reserve.”

Others note that with an increasing cost of living, especially in urban areas, like Chicago, where rents are rising, even in “mom and pop” owned buildings, the increase may be significant, but not enough to meet increased cost of living.

As we noted before, most experts seem to agree the slowdown is based on cyclical developments that allow for boom, or bust cycles, but not an immediate recession; and, this report does not mean an imminent recession.

Leading this charge was Federal Reserve Chair, Jerome Powell, who, “on Friday repeated his pledge to do whatever it takes to keep the US economy growing and waved off fears of an imminent recession despite "significant risks" from uncertainty around trade.

"We are not forecasting or expecting a recession," said Powell during a discussion with Chairman of the Swiss National Bank, Thomas Jordan, in Zurich.

Instead, he said the outlook of the US economy continues to be a favorable one," which he attributed to the Fed's decision earlier this year to cut rates for the first time in a decade.

"We're going to continue to act as appropriate to sustain this expansion," Powell said in a report from CNN.

For President Trump, who is basing his reelection on a strong economy, the cracks appearing in the economy  has been worrisome, and as we reported last month, this is a cause for concern amongst White House staff, despite the fact that Trump feels the economist is just fine, and that anything to the contrary is simply fake news.

As The Hill noted, “The report comes as the Trump administration and China try to revive trade talks after more than a year of tit-for-tat tariffs between the world's two largest economies.

Deputy staff-level talks are set to begin later this month with hopes that they will open the door to a meeting between higher-level officials sometime in October.

But with just 14 months until the 2020 election, Trump faces a narrowing window to strike a truce with China that could steer the U.S. away from the edge of a recession.”

Adding fuel to the doomsday scenario of politics is a former federal reserve president who said, in an op-ed piece, that the Fed should just go ahead and give the economy a recession, to defeat Trump,which caused Powell to exclaim in horror, to the contrary. 

Mr. Powell

"Absolutely not," said Powell during the discussion. "Political factors have absolutely no role in our process. Our colleagues wouldn't tolerate it in our discussions."

He said the idea that the Fed would deviate from that is "simply wrong. The answer to that is, 'A hard no.'

"Our obligation is to use our tools to support the economy," said Powell, who declined to weigh in on the Trump administration's trade policy. "Trade policy uncertainty is not something that central banks have a lot of practice in dealing with."

Certainly the latest rounds of tariffs, on nearly all Chinese exports, care causing deep concern, and especially from American consumers who will shoulder the brunt of higher costs from, nearly everything, from cell phones to automobiles.

In southern parts of Illinois famers, a hardy constituent of Trump supporters, are balking that the cost of soybeans, exported to bacon loving Chinese, will increase due to the tariff on American exports; and, especially foodstuffs for a burgeoning Chinese middle class.

“The next test for the U.S. labor market will come in October, when Trump is set to raise tariffs on $250 billion in Chinese imports to 30 percent from 25 percent. The president is also set to finish imposing a 15 percent tariff on another $320 billion tranche of Chinese goods in December after applying the taxes to roughly half of those goods on Sept. 1.”

Powell’s remarks aside, this report, coming as it does amidst the trade talks and tariffs with China, can potentially disrupt the U.S. economy, as “proof” of a pending recession, and could send Trump from office, in 2020, but also damage the world economy, and particularly that of manufacturing, and factories, dependent on the inclusion of interrelated parts in their finished products.

What can be expected, when the dust settles, in less than two weeks,when the Fed meets, is another quarter-point raise say most bankers and economists.

“After September, we expect additional rate cuts in October and December as the downside risks are increasing,” Kathy Bostjancic, chief United States financial economist at Oxford Economics told  The New York Times.

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.”

“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.”

While there has been no definitive answer on exactly why wages remain steadfastly low, with either competition from big box stores to non-compete clauses in contracts, to regional variances, as the reason, the low-wage conundrum is still with us, and indicative of this is only the 96,000 increase in private sector jobs in August.

The monthly figure also got a bump with the hiring of 25,000 temporary census workers, and most have agreed that without them, the job figures would have hit a significant low.

In a desperate move, “Trump has asked the Fed to slash interest rates in half from their 2 percent to 2.25 percent range, demanding a level of stimulus last seen during the 2008 recession. The president renewed his attacks on the Fed and his handpicked chairman, Jerome Powell, in a tweet posted shortly before the jobs report was released.

"They were WAY too early to raise, and Way too late to cut - and big dose quantitative tightening didn't exactly help either," Trump tweeted. "Where did I find this guy Jerome? Oh well, you can't win them all!” in a report from The Hill.

Some are taking mid-bound position, based on the data: “The softening in job growth should surprise no one but it doesn’t mean the economy is headed toward a recession right away,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Households still have the income to keep spending,” according to Reuters.

Not so fast, said the Chicago based firm of Challenger, Gray and Christmas, Inc. who in a report released on Thursday, said, ”U.S.-based employers ramped up the pace of downsizing in August, as companies announced plans to cut 53,480 jobs from their payrolls. This is up 37.7% from July’s total of 38,845.”

“August’s total is the fourth highest for job cuts this year, and marks the eighth consecutive time job cuts were higher than the corresponding month one year earlier. Last month’s total was the highest August total since 2009, when 76,456 cuts were recorded.”

“The August total is 39% higher than the 38,472 cuts announced in August 2018. So far this year, employers have announced plans to cut 423,312 jobs from their payrolls, up 36.2% from the 310,773 cuts in the first eight months of 2018. It is the highest eight-month total since 2015, when 434,554 cuts were announced,” the report emphasized.

Adding the Chinese and US Tariffs, as a major factor, it added, “Employers are beginning to feel the effects of the trade war and imposed tariffs by the U.S. and China. In fact, trade difficulties were cited as the reason for over 10,000 job cuts in August," said Andrew Challenger, Vice President of Challenger, Gray & Christmas, Inc.

For Main Street observers, we see that “The weakness largely came from the retail sector, which saw a net decline in workers of 11,100 in August alone. Trade, transportation and utilities also lost 11,000 jobs, and mining and logging lost 5,000 positions,” noted CNBC.

“The weaker than expected job gains do make sense when looking at yesterday’s ISM and Markit figures on employment and just understanding how businesses respond to the slowing pace of growth and trade worries,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Companies have taken a time out on hiring until visibility becomes less cloudy, it’s only prudent.”

There was some good news, of sort: “The Labor Department’s report on Friday showed there was an even stronger rise in the share of prime working-age adults who were working, to 80 percent — up from 79.5 percent in July and the highest level in more than 12 years.”

With a worried president, a less confident consumer, and an atypical recovery, it’s going to be a bumpy road ahead.