There was mixed news on the economy this week, but economic
news was mostly overshadowed by the impeachment drama playing out in Washington.
report was just below expectations and drove the unemployment rate down 0.2
percent but the manufacturing sector continued to struggle amid the trade war.
Total nonfarm payrolls rose by 136,000 in September,
bringing the unemployment rate down to 3.5 percent, a 50-year
low, but the devil is in the details. Even though the unemployment rate
declined, the September jobs gain was below the 161,000 per month average for
2019 and far short of the 2018 average of 223,000. At the same time, job growth
was revised up for July and August to 166,000 and 168,000 respectively.
The big gains in employment were in the service industries
and government, rather than manufacturing. The health care and professional
services sectors posted the largest gains for the month, followed by government.
Government job growth was driven primarily by local government hiring. Hiring for
the upcoming census was negligible.
The retail sector was the big loser for the month. The retail
sector posted a loss of 11,000 jobs. The retail industry has lost 197,000 jobs
since it reached a peak in January 2017. Automation may be responsible for many
of these job losses.
Other industries, including manufacturing, saw little change
over the month, but there was bad news earlier in the week about the
manufacturing sector when the Institute
for Supply Management reported that US manufacturing activity fell to a
10-year low. The index of national factory activity fell to 47.8, its lowest
level since June 2009 in the aftermath of the Great Recession. A level below 50
indicates that manufacturing is undergoing a contraction. Economists had expected
the measure to rise for the month.
September was the third straight month that US manufacturing
was below 50 on the index and the sixth straight month that the index had
declined. A reading below 42.9 would indicate a recession in the larger
Weak export manufacturing drove much of the decline. The ISM’s
index of new orders ticked up by 0.1 to 47.3, but export orders fell by more
than two points to 41.0. Export orders were at their weakest level since March
2009, while overall factory orders were at a June 2012 level.
“This is serious,” said Torsten Sløk, chief economist at
Deutsche Bank Securities told Reuters.
“There is no end in sight to this slowdown, the recession risk is real.”
The slowdown in US manufacturing is not an isolated occurrence.
The trade war has also disrupted manufacturing in Europe, the UK, Japan, and China.
President Trump’s decision to delay
tariffs in September helped the stock market, but since the tariffs are still
scheduled to go into effect in October, the move had little effect on
Looking forward, European tariffs also pose a risk to the economy.
war with Europe is heating up, thanks to a World Trade Organization ruling
that allowed the Administration to slap tariffs on $7.5 billion in European
goods such as olives, whiskey, wine, cheese, and yogurt in retaliation for European
protection of Airbus. The move could escalate the trade war with Europe just as
the tit-for-tat tariffs with China have caused that trade fight to balloon.
The economy has long been the single bright spot in President
Trump’s polling. Some
polls have already suggested that approval of the president’s job performance
on the economy may be eroding, but overall Mr. Trump is still above water with
respect to the economy. If he keeps pushing tariffs and fighting trade wars on
multiple fronts while ignoring warning signs, that could change.