Modest hiring enough to fuel sluggish but durable US economy

Business

WASHINGTON (AP) — Hiring by U.S. employers was slower but steady in August, and hourly pay jumped — trends that should sustain the U.S. economy’s record-long expansion in the coming months.

Yet with the economy still under threat from a weak global economy and President Donald Trump’s trade war with China, Chairman Jerome Powell made clear Friday that the Federal Reserve is poised to cut interest rates.

The government’s jobs report Friday showed that U.S. employers, for now, are still adding jobs at a modest pace. Hiring did slow to 130,000 jobs in August, below the average pace of the past six months.

The unemployment rate stayed at 3.7% for a third straight month, near the lowest level in five decades. And more Americans entered the workforce in August, a positive development that increased the proportion of adults who are either working or seeking work to its highest level since February.

Still, the impact of the trade war, which has yet to be fully felt by consumers and retailers, could soon inflict damage. The Trump administration has just imposed 15% tariffs on about one-fifth of Chinese imports and plans to impose another such round of import taxes on Dec. 15.

All those tariffs will fall on consumer goods ranging from clothes and toys to electronics and sporting goods, likely raising prices for shoppers and shrinking retailers’ narrow profit margins.

Trump’s previous import taxes had fallen mainly on parts and components used by manufacturers. The additional costs imposed by those tariffs and the threats of additional ones have caused businesses to cut back their spending. In addition, retaliatory tariffs from China have cut into U.S. exports.

All that has left consumers as the most important driver of U.S. economic growth. And for now, Americans are still spending. Consumer spending rose in the April-June quarter by the most in five years and also increased at a healthy clip in July. Average hourly pay rose 11 cents in August to $28.11, up 3.2% from a year earlier, easily ahead of inflation.

“With slower, but still-solid job gains and good wage growth, households will continue to spend,” Gus Faucher, chief economist at PNC, said. “The U.S. economy should avoid recession.”

Over the past six months, employers have added an average of 150,000 jobs, down from an average of 223,000 last year. Even so, job gains at that pace are enough to lower the unemployment rate over time.

Last month’s job gains were boosted by the temporary addition of 25,000 government workers for the 2020 Census. Excluding all government hiring, the economy added just 96,000 jobs in August, the fewest since May.

One reason hiring is slipping is that with the unemployment rate so low, companies are having a harder time finding qualified workers. The solid wage gain in August suggests that more businesses are deciding that they need to offer higher pay to attract and keep employees.

“That’s a sign we’re in pretty good shape here,” said Drew Matus, an economist at Metlife Investment Management.

Speaking at an event in Switzerland, Powell said he thought the U.S. consumer is in good shape and that the job market was “strong.”

Trade fights are causing “some uncertainty,” Powell added. The Fed is monitoring economic data, he said, and will “act as appropriate to sustain the expansion.”

Accordingly, the Fed is considered certain to cut its benchmark short-term rate when it next meets in two weeks and perhaps again later in the year if the impact of the trade war were to intensify.

In the meantime, the effects of the trade war are evident in industry-specific hiring figures. Manufacturers added just 3,000 jobs in August, the latest sign that their hiring has tumbled since last year.

Employment in shipping and warehousing companies was essentially unchanged last month, with fewer factory and farm goods to transport. Retailers cut 11,000 jobs, the seventh straight month of decline, though that is mostly a reflection of the impact of online shopping.

Robert McCutcheon, president of the Americans for Britax, which makes child car seats and other baby gear, says the U.S.-China trade war has sharply cut his profits. Britax assembles its car seats at its U.S. plant in Fort Mill, South Carolina yet has paid 25% tariffs for nearly a year on the textile covers it imports from China. On Sept. 1, it was hit with new tariffs on metal parts, like belt buckles, that it also imports.

The company had been eating the additional costs but is now raising prices for its customers to offset the duties. If that hurts sales, the company may have to cut back on work hours or even lay off workers, McCutcheon said.

“We plainly cannot afford this hit to our bottom line,” he said.

A report this week by the staffing firm Challenger, Gray & Christmas Inc., suggested that the trade war has begun to cause U.S. job losses.  More than 10,000 Americans were laid off in August because of trade difficulties, according to company announcements tracked by the firm. 

“Employers are beginning to feel the effects of the trade war and imposed tariffs by the U.S. and China,” said Andrew Challenger, a company vice president.

Still, for many companies in service industries that depend on U.S. consumers, business remains mostly healthy. Mike Bitar, managing director of the recruiting firm Protis Global, said the companies he works with — mostly beverage companies, consumer goods makers and restaurants — are still pushing to hire more people.

“We have not seen any slowdown at all,” he said.

Bitar tells clients that if they want to hire managers who don’t require any training, they’ll have to pay more — up to 10% to 15% higher than the typical salary for that position, given the tight labor market. If they’re willing to train new managers, he said, they can avoid paying the premium.

In Friday’s jobs report for August, one positive sign was an increase in the proportion of Americans age 25 through 54 with jobs. Economists typically focus on that age bracket because it filters out students and older Americans nearing retirement. Eighty percent of them now have jobs, the highest level since January 2008, just after the Great Recession began.

Mark Fleming, chief economist at First American Financial, said the increase suggests that millennials in their late twenties are stepping up their job searches.

“We’re finally beginning to see the heart of the millennial generation finishing their education and getting jobs,” Fleming said.

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AP Business Writers Martin Crutsinger and Bani Sapra contributed to this report.

Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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