Newsletter: U.S. Manufacturing Contracts, Employment Set to Grow

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U.S. factories are struggling, cracks may be showing in the labor market and economists decided it’s bad form to have job candidates sit on hotel-room beds during job interviews. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.

Factory Falloff

The U.S. manufacturing sector shrank for the first time in three years last month, the latest sign that trade tensions and cooling global growth are weighing on the American economy, Sarah Chaney and Andrew Restuccia report.

• The Institute for Supply Management’s manufacturing index, a closely watched gauge of factory activity, fell below the 50-mark that separates expansion from contraction for the first time since August 2016. Trade was the biggest concern for purchasing and supply executives. 
• The U.S. is following other major economies. Separate data earlier this week showed factory activity contracting in the U.K., Germany, Japan and South Korea.
• The U.S. and China last month announced new tariffs on billions of dollars of consumer goods, escalating their trade war. President Trump said Tuesday he would redouble pressure on China if he wins a second term.
• Manufacturing accounts for about 11% of U.S. output. “We put a high probability of a manufacturing recession, but the direct economic costs are not enormous and likely not enough to push the entire economy into recession,” Moody’s Analytics’s Ryan Sweet said.

WHAT TO WATCH 

The U.S. trade deficit in July is expected to narrow to $53.4 billion from $55.15 billion a month earlier. (8:30 a.m. ET)

Bank of England Governor Mark Carney appears before the Treasury Select Committee in Parliament at 9:15 a.m. ET.

The Bank of Canada releases a policy statement at 10:00 a.m. ET.

The New York Fed’s John Williams speaks at an inflation-linked products conference at 9:25 a.m. ET, the Dallas Fed’s Robert Kaplan speaks at an economic forum at 10 a.m. ET, Fed governor Michelle Bowman and the St. Louis Fed’s James Bullard speak at a “Fed Listens” event at 12:30 p.m. ET, and the Chicago Fed’s Charles Evans speaks on trade and the auto sector at 3:15 p.m. ET.

The Federal Reserve releases its beige book report at 2:00 p.m. ET.

TOP STORIES

Jobs Day Forecast

The labor market has been a bright spot in the U.S. economy, with employers creating more than 1 million jobs so far this year and boosting hourly pay for a wide swath of workers. Those gains underpin strong consumer spending, the key driver of growth this spring. It looks like the good times are still rolling: Economists are forecasting a net gain of 150,000 jobs in August, a steady unemployment rate and another annual gain of at least 3% for average hourly wages.

• Sunshine: The number of part-time workers looking for a full-time job in July hit the lowest level since 2006. The decrease in involuntary part-time employment points to shrinking labor market slack and underscores that employers are relying on workers on the margins to fill jobs. The decline in part-time work, if it continues, bodes well for wage gains, as workers gain bargaining power.

• Dark clouds: Jobs are being created at a slower pace and employers are starting to trim hours. Manufacturing overtime has seen the most dramatic cutbacks but the workweek is getting shorter in other industries as well. “Aggregate hours worked have stagnated over the past six months as the average workweek has fallen. This rarely occurs outside of recessions,” Deutsche Bank’s Matthew Luzzetti said.

The August jobs report is out Friday at 8:30 a.m. ET.

Risky Business

Bad news gets the headlines. But Boston Fed President Eric Rosengren says there’s still plenty to like about the U.S. economy:

“Concerns over tariffs and geopolitical uncertainties have increased discussion around a possible economic downturn. It is clearly reasonable to make the assessment that risks are elevated. Should those risks become a reality, the appropriate monetary policy would be to ease aggressively. However, to date, these elevated risks have not become reality, at least for the U.S. economy.”

The Fed is set to meet in the middle of this month and is very likely to lower rates again, Michael S. Derby reports.

New Rules for Interviews

The American Economic Association is implementing new rules forbidding universities and other employers from interviewing thousands of candidates in hotel rooms during the group’s annual conference. It is part of an effort to shift what former Federal Reserve Chairman Ben Bernanke, the association’s current president, has called the profession’s “reputation for hostility toward women and minorities,” David Harrison reports.

“It was not unusual when I was a job-market candidate to walk into a hotel room and see a roomful of men, and be invited to sit on the bed for a job interview,” said Jessica Holmes, an economics professor at Middlebury College in Vermont. “Many people always recognized it was strange, but it’s finally changing.”

Overseas Investors Unload U.S. Real Estate

Foreign investors in the second quarter of the year sold more U.S. commercial real estate than they bought for the first time since 2013. The reasons: a maturing property market cycle and rising uncertainties in geopolitics and the global economy, Esther Fung reports. Foreign money managers still see U.S. assets as a haven and have been piling into U.S. stocks and bonds.

Around the World

U.K. lawmakers delivered a blow to Prime Minister Boris Johnson’s Brexit strategy with a vote aimed at delaying the country’s exit from the European Union. The British leader responded by calling for a general election. More than three years after the referendum vote to leave the EU, there is still no obvious way out of the stalemate, Max Colchester reports.

Australia’s economy in the second quarter grew at its slowest annual pace since the financial crisis, dragged down by weak consumer spending and a sharp contraction in housing construction. Gross domestic product advanced 1.4% on an annual basis, James Glynn reports.

Activity in China’s service sector picked up slightly in August. The Caixin China services purchasing managers index rose to 52.1 in August from 51.6 in July, above the 50-mark that separates expansion from contraction. “China’s economy showed clear signs of a recovery in August, especially in the employment sector,” said CEBM Group’s Zhengsheng Zhong.

WHAT ELSE WE’RE READING

Mass shootings impact gun policy, though perhaps not as one might expect. “The annual number of laws that loosen gun restrictions doubles in the year following a mass shooting in states with Republican-controlled legislatures. We find no significant effect of mass shootings on laws enacted when there is a Democrat-controlled legislature, nor do we find a significant effect of mass shootings on the enactment of laws that tighten gun restrictions,” Michael Luca, Deepak Malhotra and Christopher Poliquin write in a National Bureau of Economic Research working paper.

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