August 1, 2018

July 2018 ADP National Employment Report: 219,000 Private-Sector Jobs Added (See Conference Call Notes)

Filed under: Economy — Tom @ 8:30 am

From ADP:

Private-sector employment increased by 219,000 from May to June, on a seasonally adjusted basis.

Reuters economists predicted an increase of 185,000.

From the press release:

“The labor market is on a roll with no signs of a slowdown in sight,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Nearly every industry posted strong gains and small business hiring picked up.”

Mark Zandi, chief economist of Moody’s Analytics, said, “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.”

Previous months:
- June – Was 177K, now 181K.
- May – Was originally 178K, now 196K.

CONFERENCE CALL NOTES:

MARK ZANDI: Great report, big number.

Feels like job growth has accelerated from where we were a year ago. Underlying job growth is firmly at about 200K per month, up from 150-175K. Primary reason for this is fiscal stimulus due to tax cuts and more government spending.

Should support growth through at least this time next year at annual rate of 2.5 million.

Job growth is broad-based, with the exception being info services. Retail still soft due to Amazon effect. Goods-producing sectors strong, service sector too.

Job growth is so strong that unemployment rate will continue to decline, and seems destined to go into the low 3-percent range. Not sustainable, Fed will raise rates and economy will feel the effect going into 2020. Next 12-18 months will be strong, but enjoy it while it lasts.

Biggest threat is escalating trade tensions. EU pullback being offset by China. No upside for economy over this. But if it gets no worse, no big deal. Large companies had a relatively weak July, which may be a precursor.

If the tensions escalate (we’re at $50 billion of goods with tariffs with China and $100B overall), that will do more damage and shave .25% off GDP, maybe hold back job growth by 300,000 (back to 2.2 million).

So what would generate a recession? Tariff increases of 25% on all U.S. China trade, and the Chinese would have to impose non-tariff barriers, leading to a late-2019 recession.

Questions:

ME – California – doesn’t know about employment effect. 25% is tariff rate. Scenaurios assume 10 percent on additional layers.

Chris Rugaber, AP — concerning small biz employment, which has slowed vs. medium and large companies. Zandi says it is consistent with idea that small businesses are finding it hard to hang onto workers. Wage growth at small cos is higher than at medium and large ones. Small biz is to an extent a relative casualty of the tight labor market.

Late cycle, how long will it go. What we’re seeing is consistent with what we usually see at the later end of the business cycle. But every business cycle is different. Feels like last phase of cycle.

Brian (could tell from where) — Expand on Amazon effect and info services flatness. Zandi info services weak due to online competition. Print media is getting hit hard, going on for years. Amazon effect showing up in retailing, which is normally prolific in job creation during expansions. Not this time, and it’s unprecedented. BUT, there are a lot of job openings in retail, but they’re looking for different types of folks in retail sector. But disruption ultimately leads to stronger economy due to “creative destruction” effect, leaving us in a better place.

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3 Comments

  1. deficit-financed tax cuts and increases in government spending.

    Really? Every dollar that businesses and individuals received in a tax cut was completely offset by the rise in individual income tax revenue collections. He needs to be called on his disinformation campaign.

    Comment by dscott — August 1, 2018 @ 6:45 pm

  2. Trump’s Tight Labor Market: Businesses Increasingly Hiring Disabled Americans

    https://www.breitbart.com/big-government/2018/08/01/trumps-tight-labor-market-businesses-increasingly-hiring-disabled-americans/

    My response, screw you Democrats and never Trumpers for crapping on the disabled by advocating for illegal aliens.

    Comment by dscott — August 1, 2018 @ 7:50 pm

  3. The jury is still out on the tax cuts payback. Last time I looked, decent rise in individual income taxes is roughly offset by pretty big drop in corporate taxes.

    Comment by Tom — August 1, 2018 @ 10:47 pm

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