–No Turnaround in Year’s Worsening Trade Deficit Trend
–Treasury 10-Year Keeps 1.88% Yield, Cut By New Tariff Threat
By Denny Gulino
WASHINGTON (MaceNews) – July’s moderate increase in payrolls reported Friday – 164,000 – was balanced by a cutback in hours and no acceleration in sub-par wage growth, headlining a U.S. jobs report overshadowed by the announcement expected from Beijing of retaliation for the latest trade attack from the White House.
The main unemployment rate remained at 3.7%. The broadest “U-6” rate improved two tenths to 7.0%. It was 7.5% a year earlier. However, June’s revisions in the survey of payroll issuers subtracted 41,000 slots from the year’s total.
The Federal Reserve’s Wednesday quarter-point rate cut seemed to quickly fade from center stage, having first been considered by many to be a weakly reasoned accommodation for a still thriving economy to now a just-in-time bandage to counteract more impending trade damage.
Other somber strains in the economy’s background music Friday added darker themes to the global growth slowdown centered in Asia that one top White House official conceded is bleeding into the U.S. economy.
The U.S. Friday formally walked away from its intermediate nuclear missile agreement with Russia. North Korea rattled a third short-range missile with a test launch.
The morning’s U.S. international trade deficit report, lagging with June totals, showed no turnaround in the accumulation of red ink despite a year of U.S. tariff actions against China. Both imports and exports declined as the deficit stayed about the same, at $55.2 billion, $200 million under May.
For trade context the latest report showed year over year, the average goods and services deficit is $7.2 billion wider than the three months ending a year earlier.
China’s leadership, now at a seaside resort to review strategy, is expected to soon deliver a retaliatory reaction to the administration’s threatened 10% tariffs on an additional $300 billion in imported goods. This time, unlike the current 25% tariffs on $250 billion in mostly business-to-business trade, the next phase includes consumer goods that are a mainstay of U.S. retailing and that could boost prices at checkout counters.
The jobs report further reinforced the stark contrast with 2018, a year in which payrolls averaged 223,000 additional a month. With a May payrolls gain revised down to only 62,000 and June pulled below 200,000 to 193,000 the past three months average just 140,000.
Average hourly earnings did not improve the annual increase of 3.2%, well short of the 4% and more before the financial crisis a decade ago. The highest paying jobs are in information industries, at $42.35 an hour in July, with utilities employment not far behind, at $41.66. The lowest wages are always in leisure/hospitality, at $16.59 in July. The second lowest are in retail, for July, $19.63 an hour.
The July report showed a sizable setback in a statistic which has a weight that is widely underappreciated, the length of the workweek. The average workweek slipped by a tenth of an hour to 34.3 hours/ The factory workweek shortened by three-tenths of an hour to 40.4 hours, with overtime down two-tenths to 3.2 hours. Some analysts say the seemingly small cut in hours has an outsized effect on employment, equivalent in July to the loss of more than 100,000 payroll positions.
The July report showed the labor force at a record high, which should usually be the case given the steady increase in the population, adding 370,000 in a single month after 335,000 in June. Those who dropped out of the labor force was 183,000 fewer than in June. That helped boost the labor participation rate to 63.0%, back to its rate in March but still less than the 63.2% in January.
Yet a major measure of slack in the work force, the number of those “marginally attached” who had looked for a job sometime in the previous year but not lately, stayed about the same as a year earlier at 1.5 million.
July mining jobs, which includes those in the oil patch, declined by 5,000, after plateauing in recent months. Construction, retail and wholesale trade, information, leisure/hospitality and government showed little change. Manufacturing was up, but only by 16,000. The trend there has slowed from last year’s 22,000 a month average.
On the up side were professional and technical services, adding 31,000 jobs, and health care, which grew by 30,000 jobs, close to this year’s monthly average of 33,700. Social assistance was up 20,000, above its 12,000-a-month 2019 average.
Financial industry employment was gained 18,000, mostly in insurance.
Top White House economic adviser, National Economic Council director Larry Kudlow, appeared on Bloomberg TV for his usual post-jobs report interview, only to be questioned for the most part about the latest threat of new China tariffs. He said the White House is evaluating comments from Beijing. Those appear to be preliminary pro-forma reactions, not the substantive outline of retaliatory mechanisms expected later.
“A lot of good things can happen in a month” until the new tariffs take effect, he said, and any new China purchases of U.S. agricultural products “in size” could be among them.
He said the White House has modeled the next wave of tariffs and that shows the effect on consumers would be “very, very small” with U.S. consumer spending continuing to be strong. Kudlow said talks with China are expected to resume in September and “some good things could well happen.”
In an uncommon concession, however, Kudlow said “I don’t deny” that the global slowdown is bleeding into the U.S. economy. “The United States is not immune to the world economy” and the “hardgoods sector” has been weaker, he said. He blamed “two years of severe monetary restraint,” which he said he hopes is over with, now that the Fed has done its first rate cut in a decade.
Kudlow repeated, “We have ruled out any currency intervention.” He said the White House suspects some other countries are “manipulating their currencies” for a trade advantage and “we don’t like that.” The latest semiannual Treasury report on currencies found no country has breached the criteria for manipulation.
In markets, stocks ran negative through the morning, threatening a second straight negative day. Perhaps more significant, the benchmark 10-year Treasury note yield held on to the abrupt decline triggered by Thursday’s tariff threat, at 1.884%.