- ADP report is expected to indicate lackluster hiring
- US/EU trade relations are about to deteriorate further as the WTO releases its Airbus tariff ruling
- EU waits for PM Johnson’s Brexit proposal
ADP report is expected to indicate lackluster hiring — The market consensus is for today’s Sep ADP report to show a lackluster rise of only +140,000, down from Aug’s report of +195,000. Today’s expected report of +140,000 would be below both the 3-month average of +148,000 and the 12-month average of 189,000.
Looking ahead, the consensus is for Friday’s Sep payroll report to show a lackluster increase of only +148,000 after Aug’s weak report of +130,000. Payroll growth showed a strong increase of +216,000 in April but has since shown weak growth with increases of +62,000 in May, +178,000 in June, +159,000 in July, and +130,000 in August.
Businesses are cutting back on their hiring as they wait to see how the trade war plays out and as the U.S. manufacturing sector sinks into a recession. Average monthly payroll growth this year has slid to +158,000, down sharply from the 5-year (2014-2018) average of +215,000. Payroll growth was particularly strong last year in 2018 at +223,000 due to the surge in the economy caused by the massive 2018 tax cut.
Hiring is also slowing because most businesses are fully staffed after nearly a decade of solid job growth. The U.S. economy in the past 9-1/2 years (since the job-trough in Feb 2010) has created a total of 21.8 million new jobs (+17%).
While hiring is expected to downshift, it should remain strong enough to prevent any significant rise in the unemployment rate. The consensus is for Friday’s Sep unemployment rate to be unchanged for the fourth straight month at 3.7%, just 0.1 point above the 49-year low of 3.6% posted earlier this year in April/May. The Fed is forecasting that the unemployment rate will be unchanged at 3.7% through the rest of this year and 2020, and will then rise slightly to 3.8% in 2021 and 3.9% in 2022.
US/EU trade relations are about to deteriorate further as the WTO releases its Airbus tariff ruling — US/EU trade relations are likely to deteriorate another notch as the WTO as soon as today could release a ruling on the Airbus case allowing the U.S. to legally impose tariffs on an expected $8 billion of European goods. The U.S. plans to slap those tariffs on European aircraft, aircraft parts, and a slate of European luxury goods. EU trade chief Malmstrom on Tuesday said the WTO tariff decision is expected this week and could come as early as today.
The WTO in May already ruled in the 13-year-old case that the EU provided improper subsidies to Airbus and harmed the U.S. aircraft industry. The only question now is the amount of damages and allowable tariffs.
Ms. Malmstrom on Tuesday said that she expects the U.S. to announce the new tariffs sometime this month. She said that the U.S. has not responded to the EU offer for negotiations. Separately, the EU is expecting to win a WTO case next year regarding improper U.S. subsidies for Boeing, which would allow the EU to proceed with its own tranche of penalty tariffs.
The U.S. and EU have yet to get their trade negotiations off the ground as the EU tries to get President Trump to back off his threat to slap tariffs on European auto imports. The EU is refusing the U.S. demand to include agriculture in the negotiations involving industrial and auto trade. In addition, the EU is refusing to accede to U.S. demands for export quotas on European autos, which are improper in any event under WTO rules.
The US/EU talks are awaiting the arrival of the EU’s new trade negotiator on Nov 1. The new EU trade commissioner, Phil Hogan, is being billed as a tough negotiator.
EU waits for PM Johnson’s Brexit proposal — The EU is waiting for Prime Minister Johnson to submit his Brexit proposal shortly after the Conservative Party conference ends today. An early version of the plan was leaked and Ireland called it a “non-starter,” which did not bode well for the final plan. The plan seems to turn on scrapping the Irish backstop in return for having customs check-points away from the Northern Ireland border.
Meanwhile, a little optimism emerged on Tuesday after Bloomberg reported that the EU has been discussing the possibility of putting a time limit on the backstop if the UK agrees to keep Northern Ireland in the EU customs region. The lack of a time limit on the Brexit backstop was a key reason why the UK Parliament rejected former Prime Minister May’s Brexit withdrawal agreement.
The betting probability is still low at 20% (4/1) that there will be a no-deal Brexit by the end of 2019, according to oddschecker.com. The more likely outcome is that the UK will request another Brexit deadline extension and then go to the polls for a general election by year-end, the outcome of which will determine the UK’s next steps on Brexit.
The odds that the UK and the EU can agree on a new Brexit withdrawal plan before the EU Summit on Oct 17-18 remain very slim. If there is no agreement by that summit, then a law already passed by the UK Parliament requires PM Johnson to request a Brexit extension. However, Mr. Johnson has implied that he may find a loophole around that law so that the UK goes through with a no-deal Brexit on October 31 and meets his vow of Brexit on October 31 “do-or-die.”
