There are two important reports on the U.S. economy worth mentioning this morning. First, private-sector payrolls in America rose by 156K last month, according to new ADP data. That was in line with expectations and both the May and June gains were revised slightly higher. Altogether this resulted in a 3-month average payrolls increase of 104K. That is the worst reading since 2010 but such weakness has likely been exacerbated by an earlier uptick in trade war uncertainty. For example, existing tariffs have predominately targeted goods-producing industries, and manufacturers were indeed the main detractor from private-sector payrolls growth during the past few months, whereas hiring at service-providing businesses held up rather well. Small goods producers have been especially hurt recently since these firms are not only sensitive to trade issues but also continuing to deal with the challenge of competing for talent against larger companies in a tight labor market. Encouragingly, trade tensions abated in July and there were signs of stabilization among manufacturers of all sizes.
Elsewhere, a report from the Bureau of Labor Statistics showed that total employment costs (employer-paid taxes such as Social Security and Medicare in addition to the costs of wages and benefits) in America grew by 0.6 percent in the second quarter of 2019. That was below forecasts and the smallest quarterly gain since 2017. Wage growth remained solid while the increase in benefits costs decelerated, another sign of muted inflation pressures in America and likely helped in part by the recent improvements in productivity growth. Moreover, when worker compensation increases businesses can raise selling prices to aggressively defend profit margins or instead keep prices low to try to gain market share. The latter can be more easily achieved by boosting the productivity (output per hour) of the existing workforce through investments in new equipment, technology, and employee training. The recent tax cuts helped many U.S. companies move forward the timetables for such capital spending initiatives, and continued wage growth will only increase the importance of investing in productivity.
Sources: Econoday, U.S. DoL, ADP, Bloomberg, FRBSL