Private-sector payrolls in America rose by 219K in July, according to a new report from ADP. That was a much better increase than expected and the largest monthly gain since February. The June figure was also revised higher, which helped raise the less volatile 3-month average pace of job creation to 199K, well above the rate needed to keep up with U.S. population growth. Mark Zandi, chief economist of Moody’s Analytics, added that “The job market is booming, impacted by the deficit-financed tax cuts and increases in government spending. Tariffs have yet to materially impact jobs, but the multinational companies shed jobs last month, signaling the threat.” Under the hood, most of the private-sector payrolls added last month were as usual found in the services sector (+177K), but the goods-producing sector also posted an above-trend 42K gain, helped by strong construction and manufacturing hiring. As for small business employment, payrolls at firms with 1-49 workers rose by 52K in July, the best monthly gain since April. However, the trend of slowing job creation among smaller firms that has been going on for the past few years remains intact due to the difficulty these companies face when trying to compete with large corporations for talent in a tightening labor market.
Elsewhere, the purchasing managers' index (PMI) from IHS Markit ended July at 55.3, down fractionally from 55.4 in June. Output expanded at the slowest pace of 2018 but overall remained at a historically strong level. New orders growth was also elevated in July, although this was largely driven by the domestic market, whereas foreign demand fell for the second month in a row. The strong business climate here in the U.S. in needed now more than ever to help manufacturers pass rising costs on to customers. Moreover, the rate of input price inflation accelerated in July to the 3rd-fastest reading since 2012. Some surveyed managers, though, warned that competition between firms weighed on overall pricing power. Chris Williamson, Markit’s chief business economist, added that “Suppliers’ delivery delays were more widespread than at any time in the survey’s history. With producers often scrambling to buy enough raw materials, suppliers enjoyed greater pricing power. Not surprisingly, with tariffs also kicking in, cost pressures spiked higher again.” Even less encouraging was the Institute for Supply Management's (ISM's) manufacturing index, also released this morning, which ended July at 58.1, the weakest headline reading since April. Under the hood, measures of new orders, production, price pressures, and foreign trade all deteriorated last month but employment improved slightly. Comments from surveyed managers were at best mixed, with numerous complaints about U.S. trade policy.
Sources: Econoday, ADP, IHS Markit, ISM, FRBSL
Post author: Charles Couch