Digging in to the July Employment Report, Tariffs Not Hurting Labor Market Yet

The July employment report was released on Friday and the headline numbers showed that there were 157,000 jobs added during the month and that the unemployment rate fell to 3.9%. The number of jobs added to the economy fell short of analysts’ expectations as the consensus was for 190,000 jobs to be added. The unemployment rate ticked up unexpectedly in June, but came right back down in July.

The payroll numbers for May and June were both revised upward. For June, the revised figure was 248,000 and that was up from 213,000 while the May figure was revised up to 268,000 from 244,000.

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One area that has been a concern is the average hourly earnings figures. Given the tight labor market economists have been concerned that wages would rise too rapidly and cause an increase in the overall inflation rate. For July the average hourly earnings figure was up 0.3% and that was in line with expectations. Over the past year earnings have increased by 2.7% and that is slightly below the overall inflation rate of 2.9%.

Looking at the different segments, the largest job growth was in business services with 51,000 jobs being added. There were 37,000 jobs added in the manufacturing segment with the bulk of those gains coming from the durable goods industry. Over the past year there have been 518,000 jobs gained in business services and 327,000 jobs added in the manufacturing segment.

The construction segment saw 19,000 jobs added in July and employment in the segment has increased by 308,000 over the past year. I wrote an article concerning the housing industry on Thursday that outlined how the industry is having a hard time attracting young workers.

The only segment that saw a decline in employment was the sporting goods, hobby, book, and music stores. The segment lost 32,000 jobs in July and that is most likely attributed to Toys R Us completing is total shutdown.

Overall the employment report shows that the economy is still in expansion mode and it looks like it will continue that way for the foreseeable future. While the trade disputes and tariffs have impacted the stock market and influenced certain industries, both positively and negatively, the effects aren’t being reflected in the labor market.

If the trade disputes don’t get resolved soon, inflation and the labor market will definitely be affected. Certain industries are already being affected by the steel and aluminum tariffs as companies such as Coca Cola and Boston Beer have announced price increases due to the cost of the aluminum they use in packaging. U.S. steel prices are up 33% and aluminum prices are up 11% since the start of the year.

While there seems to be progress in the trade talks between the U.S. and the EU, as well as Mexico, little progress has been made in the talks between the U.S. and Canada or China. If the disputes continue, you can bet they will start to have a negative impact on the labor market and you can bet there will be major shifts in the different segments.

Some industries will gain more jobs than usual while others will start to lose jobs. It isn’t necessarily a zero-sum game, but price increases like the ones in steel and aluminum will start to hurt demand for certain goods. And when demand falls, production gets cut and workers will see their hours decline or people will be let go completely. Let’s hope it doesn’t come to that.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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