Additional tariffs on Chinese imports due in October could push the country into recession

David P. GOLDMAN

Private payrolls grew by only 96,000 in August, far below the consensus expectation. Including government jobs, total payrolls rose by 130,000, although the count was inflated by hiring for the 2020 census. The data confirm a sharp slowdown in economic activity, but not a recession – yet.

Whether the US tips into an actual downturn during the runup to the 2020 elections depends on how consumers respond to price hikes due to additional tariffs on Chinese imports scheduled to hit on Oct. 1 and again on Oct. 15. As I reported in this space Sept. 5, a sharp and unexpected drop in the University of Michigan’s consumer confidence index suggests that US consumers might not sustain the 4.7% annualized rate of real spending growth reported in the second-quarter GDP data.

The broadest measure of private labor in the US is the total number of weekly hours worked – the product of the total number of private-sector employees and average weekly hours worked. This global measure stopped growing in 2019 after a steady rise through 2018.

The year-on-year rate of growth of total hours worked slid from a 2018 peak of 2.5% to just 1% in August. As the chart shows, the growth rate is back to where it was at the worst of the growth slump towards the end of the Obama Administration.

The most sensitive forward-looking indicator of US economic activity, my research shows, is the Conference Board’s index of help wanted ads online. This turned negative in 2019 for the first time since the recovery began.

Economists tend to rely on the National Association of Purchasing Managers’ diffusion indices for manufacturing and services. The Conference Board’s leading economic indicators, including the help-wanted index, anticipate the widely-followed Purchasing Managers’ Indices published by NAPM.

The stock market cheered when the NAPM’s PMI for services printed at a higher-than-expected level on Friday (although a similar index published by Markit came in lower than expected). Investors should have been following the Conference Board’s data.

Lagged changes in the Conference Board’s Leading Economic indicators have predictive value for future values of the NAPM’s Composite index (manufacturing plus services).