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Despite blockbuster jobs numbers, trade wars remain a fly in the ointment

Market experts worry that looming tariffs on $156B in Chinese-made consumer goods could drive up corporate expenses and hurt consumer buying power.
An employee prepares a steel frame inside a manufacturing facility in Colorado Springs
An employee prepares a steel frame inside a manufacturing facility in Colorado Springs, Colo. on Sept. 24, 2019.Rachel Woolf / Bloomberg via Getty Images

Workers and investors got an early Christmas gift with a blowout November jobs report that showed the U.S. economy is still capable of creating jobs and sustaining wage gains above the rate of inflation, but the fly in the ointment is persistent trade war worry.

“It indicates that the labor market is defying gravity as we enter the end of the year,” said senior economist Daniel Zhao.

Economists said the addition of 266,000 new jobs, nearly all of which — 254,000 — came from the private sector, reflected how the labor market is pulling the disengaged and underemployed off the sidelines.

“The labor market continues to be more than robust enough to continue to absorb new workers. The unemployment and underemployment rates are going down at the same time,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

The two numbers often have an inverse relationship, he said. Moving in tandem is an indication that there is a demand for more workers, and that the labor force is meeting that demand.

At 63.2 percent, the labor force participation rate has tracked at roughly the same level for the past four months. “It shows you there’s a quite a bit of dynamism in the U.S. labor market,” Samana said.

“Job seekers need to take advantage of it. There’s definitely pockets of growth and there’s going to be pockets of decline,” said Irina Novoselsky, CEO at “The supply and demand trends are very different in different zip codes,” she said.

Those uneven rates of job growth could be holding back wage gains. At an annualized 3.1 percent, wage growth is still slightly below what many economists would consider a healthy range of 3.5 to 4 percent, although market observers said the persistently low rate of inflation helps mitigate that.

“It’s faster than the rate of inflation,” Greg McBride, chief financial analyst at, said of the wage growth rate. “We are seeing some growth in consumer buying power, albeit modest,” he said.

“If you look at the six-month average, you can see that there’s been a continued deceleration in payrolls growth, especially in manufacturing. There’s been a clear deceleration in wage growth,” Samana said, although he added that this trend does have a silver lining for companies.

“When you start to meaningfully accelerate north of 3 percent, that’s when profit margins come under pressure,” he said.

Market experts worried that a looming tranche of tariffs on $156 billion in Chinese-made consumer goods could drive up corporate expenses in unpredictable ways, and more importantly, hurt consumer buying power.

“Those tariffs are much more geared towards the U.S. consumer, and if the U.S. consumer were to start to feel their costs rise meaningfully, most people don’t have a lot of excess savings,” Samana said. “The consumer spends until they start to worry about their financial situation.”

When combined with the cost pressures of tariffs, a tight labor market could create inflation more quickly than demand for workers alone.

“We’re pretty concerned about the overall impact on inflation,” said John Bredemus, chief investment officer at Allianz Investment Management. Higher inflation could drive up mortgage rates and contribute to a rising dollar, a headwind for U.S. multinational firms.

For this reason, some economists were less sanguine about the longer-term outlook in spite of November’s outsized job gains, questioning whether the positive reading was too good to be true.

“It seems like a candidate for a big downward revision,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, who characterized the report as an “outlier” in a client note. “A repeat of this performance in December would be a different story but we think downside correction is more likely,” he said.

Economists said that while the effects of new tariffs wouldn’t be immediate, they would be hard to mitigate once set into play.

"That does bear watching as we move into 2020. Any tariffs that take effect, and particularly those that hit the consumer pocketbook, do pose a stiffer headwind,” McBride said.

With consumer spending the key driver of today’s economy in the face of anemic corporate investment, anything that makes Americans less willing or able to buy goods and services could spread the trade war’s impact far beyond the manufacturing sector.

“I think the concern is that as the Dec. 15 tariffs roll around, if we don’t have a trade agreement in place by then, there is the potential that the trade war spills over into other sectors,” Zhao said.