Tomorrow’s U.S. unemployment report is predicted to drop the unemployment rate to 3.8 percent, according to MarketWatch. But that may be misleading, as almost one million job openings remain unfilled, which could boost the payroll jobs total much higher. Even though just 157,000 payroll jobs were created in July, it may have been because so many work seekers were in vacation, and didn’t choose to take up a new job.
Tomorrow is important because it could foretell whether economic growth is slowing due to the trade war uncertainties. The just revised Q2 GDP growth estimate was left unchanged at 4.2 percent, a good showing.
Meanwhile, initial weekly jobless claims have fallen to 203,000, the lowest since 1969, which is another sign fewer workers are being laid off. Today’s August ADP private payrolls survey reported 163,000 jobs created. It is sometimes a predictor of the U.S. jobs report, as the above graph shows, but usually underestimates the U.S. Labor Department report.
Another sign of economic strength is the just released August ISM non-manufacturing survey of Supply Managers. ISM’s non-manufacturing sample reports sharp acceleration in overall growth during August, at an index of 58.5 vs July’s 55. Strength is centered in orders with both new orders, at 60.4, and backlog orders, at 56.5, posting strong monthly gains. And new export orders are up 2.5 points to 60.5, a special plus and one that underscores the importance of service exports for the U.S. economy, says Econoday.
“Export orders expanded at stable levels,” commented Timothy R. Fiore, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “Prices pressure continues, but the index softened for the third straight month and remains above 70. Demand is still robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations. Panelists are actively evaluating how to respond to these business changes, given the uncertainty.”
Prices are rising for parts as well as finished products, in other words. But companies are not yet passing said costs on to consumers; maybe because of the recent tax cuts. That is, except for the two industries reporting contraction in August: Wood Products and Primary Metals, which are already subject to higher tariffs.
Corporate profits are surging almost 8 percent at present because of the tax cuts. But corporations are not yet boosting employees’ wages and salaries above the inflation rate. How is that possible in such a tight labor market? This may be clearer with tomorrow’s unemployment report.
A recent National Bureau of Economic Research Working Paper that surveyed union historical records showed during maximum membership years from 1940-70 unions offered a larger wage premium to less-skilled workers, so that unions have had an important equalizing effect on income distribution to the extent that they are successful in organizing the less-skilled.
But that effect has diminished as union membership shrank and lower numbers of low-skilled workers have joined union since then, which is also keeping wages from rising faster. Still, union membership has historically offered greater benefits to union workers than non-union workers.
Harlan Green © 2018
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