Vehicle Sales Increase, But So Do Job Cuts

High Job Cuts Again

There have been a few Challenger Job Cut reports this year that have caused investors to worry about the labor market. Most were early in the year. The August reading was another worrisome signal although it wasn’t as bad as the big spikes this winter. Specifically, job cuts increased from 38,845 in July to 53,480 in August. The chart below shows the yearly increase was well over 30%.

The good news is the 6 month moving average of the yearly growth rate is still falling. It has spiked in each of the 3 slowdowns in this expansion. We shouldn’t be that surprised that the spike in job cuts this year didn’t lead to a spike in jobless claims because they didn’t lead to such increases in the prior 2 slowdowns. This spike in job cut growth was slightly higher than it was the prior two slowdowns, but not by a lot. It’s interesting that this growth rate is already falling even though the slowdown doesn’t appear to be over. In that sense, this report can be considered a major positive since it forecasted this slowdown.   

The increase in job cuts has been catalyzed partially by the cyclical slowdown and partially by the trade war. Specifically, 10,488 positions were eliminated because of “trade difficulties.” There were 25,000 announced hires which means there were more cut announcements that hires.

Industries With Biggest Spike In Job Cuts

Let’s quickly look at the industries with the highest yearly job cut growth. The highest growth was in warehousing which increased 1,121%. The economy has switched from retail jobs in stores to jobs in warehouses because of the rise of online shopping. The fear of retail causing a collapse in the labor market was greatly exaggerated. We need to see robots eliminating warehousing jobs before the labor market takes a hit. That could be a net positive because warehousing workers have been known to receive poor treatment. I think firms like Amazon know that these jobs will be taken by robots which makes them not focus on workforce development.

There was an 868% increase in mining job cut announcements and a 210% increase in the energy industry. That’s in line with the underperformance in the energy sector (XLE) which is about flat year to date. Tech has seen a 341% increase in job cuts which is in line with the low info tech job creation in the ADP report this year. The tech industry has been hurt by the global slowdown and the trade war. Speaking of the trade war, industrial goods had a 203% increase in job cuts. That’s in line with the weakness in the ISM manufacturing report. The ISM’s employment index fell 4.3 points to 47.4. Finally, the auto industry had a spike of 193%. That’s consistent with the weakness seen in the Markit manufacturing PMI.

Surprising Improvement In Vehicle Sales

Even though the Markit manufacturing report specifically highlighted the weakness in the auto industry and it had a 193% spike in job cuts in August, the August motor vehicle sales report beat estimates and showed improvement. As you can see from the chart below, there were 16.97 million total vehicles sold which increased from 16.8 million.

This report might be hurt by hurricane Dorian in September. The good news is the hurricane didn’t directly hit Florida. It didn’t impact America when it was at its peak. Expectations were for 16.8 million in vehicle sales. As you can see, sales have plateaued for about 4 years. Domestic vehicle sales were 13.1 million which was the same as July which had its reading revised up by 100,000. This report signals motor vehicle sales will help the August retail sales report which is released on the 13th. In the July retail sales report, motor vehicle spending was down 0.6%.

Jobless Claims Stay Low

There were two solid labor reports on Thursday which limited the focus on the Job Cut report. Firstly, jobless claims were low as usual. Claims were up 1,000 to 217,000. This is the 100thstraight week of claims being below 250,000 which is the longest streak ever. The 4 week moving average increased slightly to 216,250 from 214,750. Continuing claims fell 39,000 and the 4 week moving average fell 6,250 to 1.691 million.

ADP Report Shows Solid Job Creation

Even though the bears have been beating the drum that job growth is falling which means negative prints are coming, the August ADP report was solid. The August beat was bigger than the negative revision to the July reading, so I call it a victory for the bulls. July’s reading was revised down from 156,000 to 142,000. August showed 195,000 private sector jobs added which beat the consensus for 150,000 jobs and the high end of the estimate range which was 160,000. The BLS report is expected to show 150,000 private sector jobs created, so this report implies a beat is coming. On the negative side, the ADP report has been higher than the BLS report in August for some reason. In the past 5 Augusts, the ADP report has been above the BLS report by 40,000 on average, meaning the BLS report could come in very close to the consensus.

Let’s look at the specifics of this report. The bears were wrong to call the weakness in small business job creation a trend as small businesses added 66,000 jobs in August (up from 11,000). The weakness earlier this summer may have been a fluke. Very small firms added 26,000 jobs and other small firms added 40,000 jobs. Midsized firms added 77,000 jobs and large firms added just 52,000 jobs. Large firms didn’t drive growth this month.

Unsurprisingly, the service sector created most of the jobs. Goods producing firms added 11,000 jobs and service providing firms added 184,000 jobs. Manufacturing actually added jobs as there were 8,000 new manufacturing workers. Consistent with the Job Cut report, information services lost 6,000 jobs. The two industries with the most jobs added were education and health which added 58,000 jobs and leisure and hospitality which added 42,000 jobs. 

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