This Week In The Economy: Structural Issues In The U.S. Labor Market, Trade Roller-coaster
Welcome to a regular snapshot-review of U.S. and international economic news that aims to 1) provide a window into the challenges and decisions facing businesses today, 2) determine the direction of economic policy — such as the speed at which central banks decide to raise interest rates, and 3) assess what the impact will be for consumers.
Latest Jobs Report Highlights Structural Issues In U.S. Labor Market
The November jobs report was less-than-stellar, with the U.S. economy only adding 155,000 jobs last month — while the unemployment rate remained unchanged at 3.7%. The change in total nonfarm payroll employment for October was revised down from +250,000 to +237,000, and the change for September was revised up from +118,000 to +119,000.
One notable area of weakness was in retail hiring, which is usually a strong contributor to job growth in the run-up to the Christmas holiday. This time, overall retail trade employment changed little in November, and there jobs were actually cut in clothing and clothing accessories stores (-14,000); electronics and appliance stores (-11,000); and sporting goods, hobby, and book stores (-11,000). The growing shift in emphasis on e-commerce over physical retail locations is likely a major driver of this.
More broadly, even though average hourly earnings have increased by 3.1% compared to a year ago, the labor force participation rate (those with jobs plus and unemployed labor actively looking for work) remained unchanged at 62.9%. Employers have regularly cited an ongoing difficulty in filling open positions, with a skills mismatch held up as the primary reason.
The Federal Reserve’s Beige Book report this week underlined the problem facing employers, noting that labor markets “tightened further” across a broad range of occupations.
“Over half of the Districts cited firms for which employment, production, and sometimes capacity expansion had been constrained by an inability to attract and retain qualified workers.” — Federal Reserve
In addition to raising wages to compete for workers, the report said there were also examples of firms enhancing non-wage benefits, including health benefits, profit-sharing, bonuses, and paid vacation days.
The number of Americans employed part time for economic reasons (also known as involuntary part-time workers) isat 4.8 million. These
are people who would have preferred full-time employment, but were working part time because their hours had been reduced or they were unable to find full-time jobs. In addition, 1.7 million Americans were marginally attached to the labor force in November, an increase of 197,000 from a year earlier. These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months.
Trade — Snatching Defeat From The Jaws Of A Very Small Victory
President Trump and China’s Xi Jinping emerged from a Dec. 1 meeting on the sidelines of the G20 meeting in Buenos Aires with an agreement to halt trade hostilities for 90 days while both countries try to negotiate a deal. Markets breathed a sigh of relief, even though no details were released about what issues will be addressed.
Then this happened:
Investors suddenly realized a 90-day truce is no guarantee of lasting peace between both countries on the trade front, with the stock market plunging to new lows this week. These fears were then exacerbated by the arrest this week of a senior Huawei executive for Iran sanction violations.
Both countries have since sought to soothe the panicked financial markets, with China, in particular, promising to purchased more agricultural products, natural gas, and ease tariffs on autos — again without much additional detail. Meanwhile, incoming data underlined the negative impact of protectionist trade policies.
The U.S. trade deficit increased to $55.5 billion in October from $54.6 billion in September, with exports down to $211.0 billion in October from $211.4 billion in September. Imports (which subtracts from economic growth) increased to $266.5 billion in October from $265.9 billion in September.
Key exports such as soybeans continued to drop as a result of retaliatory Chinese tariffs. At the same time, the jump in imports can be attributed at least in part to American businesses stockpiling Chinese goods ahead of the 25% increase in the tariff rate that was scheduled to go into effect on Jan. 1.
The Business Roundtable also published its Q4 2018 CEO Economic Outlook Index — a composite of CEO expectations for sales and plans for capital spending and hiring over the next six months. The fourth quarter survey marked the third consecutive quarter in which the Index declined from the previous quarter, with increased barriers to trade cited as a major factor.
CEO plans for hiring dipped, as did plans for capital investment, and their expectations for sales also fell.
The Bank of Canada also chose to keep interest rates on hold this week, noting emerging signs “that trade conflicts are weighing more heavily on global demand.”
OPEC +Non-Members Agree To Oil Production Cut
After meeting for close to three days, news reports indicate OPEC members plus major producers including Russia have agreed to a take 1.2 million barrels per day off the oil market.
OPEC cartel tentatively agreed to reduce its output by 800,000 barrels per day, while Russia and the allied producers are proposing a 400,000 barrel per day reduction.
