Ten years after the U.S. economy started recovering, it cannot produce as many jobs as it could before. There are a couple of reasons for this. First, the number of workers has decreased, and furthermore, the employers fear the consequences of the trade war with China.
Economists hope to see around 165,000 open job positions in the job report for June that is due on Friday, which would be a major increase after the disappointing 75,000 jobs offered in May. However, the ADP report showed that there were only 102,000 private job openings and sunk the expectations for the official report.
This job report provides an essential piece of information for the Fed and is about to be published at the end of this month. If the job growth continues to slow down or wages go down, that is going to be an indicator that it’s time for the interest rate cut. It is expected that the June report is going to show that unemployment stands at 3.6% and the average hourly wage has risen by 0.3%.
Economy specialist Chris Rupkey said that the low unemployment rate clearly showed that there was a shortage of workers in America. He also added that he took the ADP report with a grain of salt. He wonders whether the number of 200,000 jobs offered would become a distant memory.
People shouldn’t take the ADP report as a reliable assessment of the state of affairs on the employment market since it has shown considerably different numbers than the government’s job report in May. The initial ADP projection for May was that there were only 27,000 jobs available and was later corrected to 40,000 which was still far from the official number of 75,000.
However, this report served as an announcement of the employment slowdown later presented in the government report. While the number of jobs is going down, some other employment factors remain strong. Thus, according to data from the labor market, the number of unemployment claims has significantly dropped in June to 221,000.
The worrying fact about the ADP report is that it showed there were 37,000 fewer jobs available in small businesses that employ up to 19 people. Small businesses present a real booster of every economy, so to see a decline in this sector is never a positive sign.
It is still unknown how many employers hold their breath when hiring because they are worried about the trade war consequences and taxes and not so much about this slowdown.
What raises another red flag is a decline in the manufacturing sector and investment spending.
Rupkey stated that weak job offer two months in a row would certainly be a bad sign that would incite the Federal Reserve to implement rate cuts. However, he supposed this move would be expected on the market and that the economy wouldn’t go downhill because the consumers were still strong.
For another economy expert, Diane Swonk, this decrease in the labor market didn’t come as a surprise, and she actually thinks it was expected, and it has been going on since last year. The issue that the Fed should take seriously, in her opinion, is the rate of the wage growth that hasn’t been optimistic lately either. She thinks it is essential to keep this rate around 3%.
Mark Zandy from Moody’s Analytics estimates that the official job report is going to show 135,000 jobs available in June and that this number will reflect both a shortage in workforce and concerns about the impact of the trade war on the economy.
He adds that the ADP report presents the state of things in the private sector and that the official report is going to be packed with government jobs.
For Mark Zandi, the trade war is the main cause for this steep decline on the job market. He compares estimated 165,000 today with 225,000 open positions the same time last year saying that this number could drop to 150,000 or even less.
Specialists at J.P. Morgan are not that gloomy though. They expect the official number to hit the 140,000 mark saying that after they had studied all the relevant data, they thought that the decline in job offer wasn’t so terrifying after all.