There’s a job for that
The economy created 145k new jobs to cap off the last month of the decade. While this number fell 20k short of expectations and was accompanied by downward revisions for the prior two months’ reported numbers, unemployment remained at a 50-year low. A broader unemployment rate (U6), which includes discouraged workers no longer seeking jobs and part-time workers looking for full-time jobs, fell to all-time record low levels in December. Despite these unemployment levels, wage growth fell below 3% in December for the first time since the summer of 2018.
Moral of the story: We created 2.1m jobs in 2019, which is down from the 2.7m jobs created the prior year, and this is largely due to the trade-driven manufacturing recession and a super tight labor market where there just aren’t more skilled workers to employ. This strong labor market should give consumers the confidence needed to keep spending as they have throughout this record-long economic expansion as we enter 2020.
While the manufacturing sector shrank further in December, the services side of the economy actually expanded to the highest level in four months. Even though the services industry has also struggled since the trade tensions began, it has been a little more sheltered compared to manufacturing companies with more direct exposure to Chinese imports and exports.
Moral of the story: The services sector accounts for about 80% of the private sector economy and because sales for these companies have held up, there hasn’t been a need for payroll reductions. Any change in hiring here is what would turn the labor market, but it seems like we should be alright.
One step forward, two steps back
While the trade war with China has had many tangential impacts to the economy, it has absolutely had an impact on our trade deficit. The trade deficit fell sharply in November driven by lower Chinese imports and higher oil exports. The trade deficit with China alone has fallen from $320b at this time last year to $61b for the year through November. If this trend continues for December, the US might see its first ever annual decline in the trade deficit since 2013.
Moral of the story: The first phase of the trade deal is expected to be signed with China next week but this mainly contains issues that are easier to address. It seems likely that the more controversial issues could take months, if not years, to resolve. Regardless, a better trade balance should help contribute some incremental GDP growth to make up for the detriment to GDP through all the other tangential economic impacts from this conflict.