The private sector gained 271,000 jobs in December, according to payroll giant ADP's monthly National Employment Report, as the economy continued to show robust strength thanks in part to tax cuts, despite the volatile stock market, trade wars and the start of the partial government shutdown.
Mark Zandi, chief economist of Moody’s Analytics, which compiles the monthly national employment report with ADP, noted that businesses are continuing to add aggressively to their payrolls despite the stock market slump and trade conflicts. The favorable December weather also helped lift the job market.
“Another month, another very good report,” Zandi said during a conference call Thursday with reporters. “The job market is humming along.”
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The service sector added 224,000 jobs, including 66,000 in professional and business services, which includes accounting and tax preparation, along with other types of services. The goods-producing sector added 47,000 jobs, including 37,000 in construction. Franchises added 29,000 29,000 jobs.
“We wrapped up 2018 with another month of significant growth in the labor market,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, in a statement Thursday. “Although there were increases in most sectors, the busy holiday season greatly impacted both trade and leisure and hospitality. Small businesses also experienced their strongest month of job growth all year.”
Trouble on the horizon?
Zandi cautioned that ADP is starting to see some softness in the job gains at large companies, and that the natural resources and mining sector lost 2,000 jobs.
“Despite all the hand-wringing over slowing growth globally and here in the U.S., it has not yet shown up in the labor market,” he told reporters. “I do think growth is slowing. The trade war with China does appear to be doing some economic damage. Clearly some of the weakness in the stock market has been related to the trade war. We’ve seen investment spending by businesses go flat since last summer. Business sentiment has weakened also, in contrast to consumer sentiment, which remains very strong. Business sentiment has actually fallen off quite considerably. A survey of CFOs was quite pessimistic about growth prospects for 2019, even suggesting some risk of recession over the next 12 to 18 months. Other than that, though, we have not yet seen it show up in the labor market.”
He believes that’s because of the labor shortage. “My sense is the last place we’d see it show up would be in the job market because businesses’ No. 1 problem right now is finding workers to fill the record number of open job positions,” said Zandi. “They’re very loath to curtail their hiring. They’ve been working very hard to try to maintain their workforce and to add to their existing rolls, and I think they’re reluctant to slow the process down just because they have so many unfilled positions, so I think the last thing that’s going to reflect broader economic weakening will be in the labor market. As long as the labor market hangs tough and as long as we continue to create jobs at this relatively rapid pace, the economy should be able to move forward and avoid a significant slump or even an economic downturn.”
Part of the reason for the robust job growth has been the Tax Cuts and Jobs Act, but that has added only a temporary stimulus. “The tax cut benefits are fading,” said Zandi. “We’ll get a little bit more juice because of the larger tax refunds in the next few months, but then the tax stimulus is gone.”
The partial government shutdown could have a negative impact despite the tax cuts, especially if tax refunds are delayed. “I think the impact depends on how long this goes on,” he added. “We’re in Day 13. So far it’s no big deal in large part because a small number of workers in the grand scheme of things are affected. About 800,000 workers aren’t getting paid. About 400,000 aren’t working. The shutdown has been during the holiday season when activity has already been pretty modest, so the fallout so far doesn’t register. If it continues on, though, then I do think we may see some disruptions that have employment effects. One of the most obvious would be impacts on the mortgage and housing markets. If you need to buy a home and close on a mortgage, you need your tax returns and W-2 statements for verification, and to get that verification mortgage lenders need to go to the IRS. If the IRS isn’t up and running and doing what they need to do, we might not see loan closings and we might not see home sales, so the housing market would be in jeopardy in the month of January. That’s not a huge deal because it’s pretty seasonally slow, but once you move into February, March or April, the spring home selling season, it then becomes a bigger deal. There’s also some potential disruptions related to getting Social Security numbers. ... If this thing drags on, the wheels start coming off and the damage could be serious.”
