The jobs market is hot, but 2 areas bear watching

Calder McHugh
Associate Editor

With all eyes on Friday’s July nonfarm payrolls, economists expect the U.S. labor market to remain strong in the face of global headwinds — but warn that small businesses and wages bear watching.

On Wednesday, ADP data showed that private sector employers added 156,000 jobs in July, adding to a year’s worth of steady overall growth and beating the numbers for May and June.

Even amidst relatively strong job numbers, though, small businesses have shed jobs at an alarming rate, ADP data shows.

Although big businesses saw large gains in July — to the tune of 78,000 jobs at companies with 500+ employees — small companies actually shed 18,000.

Analysts point out that small businesses are the backbone of the U.S. economy, yet that sector is showing signs of duress as huge competitors grab more of the market share. Subsidies and tax breaks from local and state governments also normally favor big businesses.

“Small businesses are suffering the brunt of the slowdown,” said Mark Zandi, chief economist of Moody’s Analytics, even as he called jobs growth “healthy” overall.

“Hampering job growth are labor shortages, layoffs at bricks-and-mortar retailers, and fallout from weaker global trade” are hurting the sector, he added.

CAMBRIDGE, MA - NOVEMBER 24: Gerald Fusco examines records while shopping at Stereo Jack's on Massachusetts Avenue in Cambridge, MA on Small Business Saturday, Nov. 24, 2018. (Photo by Craig F. Walker/The Boston Globe via Getty Images)

There are also significant worries that real wages have stagnated, partly as a result of the squeeze on small business in America.

This doesn’t tell the full story, though. While wages have stagnated, Deutsche Bank’s top economist Torsten Slok noted recently that the strong labor market is encouraging workers to come off the sidelines. Those employees regularly begin at low wages, which dampens overall pay growth, Slok said.

“The number of additional workers joining the labor market each month has been going up despite worries about long-term unemployed people losing their skills, the opioid crisis, and many people on disability insurance,” the economist added.

In other words, sluggish wage growth is a mixed bag. The availability of jobs is enough to lure the unemployed back into the market — but it also keeps wage pressures low.

And just how long the unemployment rate can continue to defy gravity is anyone’s guess. When the Labor Department reports July payrolls data on Friday, economists expect the economy to have added 166,000 jobs during the month.

“While we still see strength in the labor market, it has shown signs of weakening,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “A moderation in growth is expected as the labor market tightens further.”

Calder McHugh is an Associate Editor at Yahoo Finance. Follow him on Twitter: @Calder_McHugh.

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