US economy

US-China trade war starts to take a toll on employment


The US-China trade war weighed on manufacturers and smaller employers struggled to compete in a tight labour market, even as hiring by US private sector employers rebounded in July to the highest in three months.

The figures from payroll processor ADP come ahead of the Fed’s monetary policy decision on Wednesday, when the central bank is widely expected to deliver a 25 basis point rate cut. The closely watched monthly US jobs report from the labour department is due on Friday. 

Private payrolls increased by 156,000 in July from a revised 112,000 a month earlier, ADP said on Wednesday. That narrowly exceeded economists’ expectations for 150,000 but fell short of the rate last year and in the first half of 2019. 

Mark Zandi, chief economist at Moody’s, said he would not be surprised to see ADP’s monthly growth figure fall towards 100,000 by the end of this year. He now expects Friday’s report from the Bureau of Labor Statistics to show monthly job growth of 140,000, down from 224,000 in June, with the unemployment rate little changed at 3.6 per cent.

Uncertainty around the ongoing trade war between Washington and Beijing has already weighed on companies’ capital spending plans and economic growth. Now, Mr Zandi said, it was showing up in the job numbers.

Job growth in manufacturing, which peaked at almost 25,000 jobs a month in the fourth quarter of 2018, was now “just barely positive”, he said, noting that transportation and distribution companies were also feeling the impact. 

“I think business held on thinking maybe the trade war would wind down and that hasn’t happened,” he said.

Smaller manufacturers in particular were struggling to change their supply chains as larger groups had done, Mr Zandi added: “It’s very much like a tax increase on them and it wipes out their margins.”

Across the board, small businesses continued to show the weakest hiring trends in ADP’s report, adding just 11,000 jobs in the month. Large businesses, classified as those with 500 or more employees, led the way by creating 78,000 new jobs, while midsized companies with between 50 and 499 employees hired 67,000 employees. 

“Small businesses are suffering the brunt of the slowdown,” said Mr Zandi. Many were struggling to compete with bigger companies for talent in a tight labour market, and “mom and pop” retailers were suffering from the growth of ecommerce, he said.

Other industries, from construction to hospitality, are experiencing pronounced shortages, however. Mr Zandi said he saw some evidence of “labour hoarding” in the accounting, legal and financial services professions such that the US has not seen since the dotcom boom of the late 1990s and early 2000s.

“They’re worried about finding workers some months down the road so they’re stockpiling employees,” he said.

While the labour market has strengthened, the unemployment rate has declined and wage growth has picked up, inflation remains sluggish, leaving policymakers scratching their heads. Fed chairman Jay Powell has cautioned that downbeat prices could lead to an “unhealthy dynamic” of lower interest rates and less room to act in a downturn.



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