Private sector employment increased by 172,000 positions in June 2016, but a lack of strength in the goods-producing sector and at large organizations may be indicative of global factors influencing the market, according to the ADP National Employment Report® (NER). While June's growth is consistent with the 168,000 positions added in May and the 149,000 in April, "since the start of 2016, average monthly job creation has slightly dropped," states Ahu Yildirmaz, VP and head of the ADP Research Institute. Yildirmaz points to "lackluster global growth, low commodity prices, and an unfavorable exchange rate" as factors that could be contributing to delayed growth.
The growth of large organizations and goods-producing firms suffered in June. Large employers with 500 or more employees added just 25,000 jobs, which is similar to the 23,000 increase in May. The goods-producing sector decreased by 36,000 roles, which includes a 21,000 drop in the manufacturing industry.
"Job growth remains healthy except in the energy and trade-sensitive manufacturing sectors. Large multinationals are struggling a bit, and Brexit won't help," Mark Zandi, chief economist at Moody's Analytics, stated. However, "small- and mid-sized companies continue to add strongly to payrolls."
Why Trade-Sensitive Sectors Are Struggling
Both industries that comprise the goods-producing sector, manufacturing and construction, took a noticeable hit in June 2016. Construction's May gain of 9,000 roles was offset slightly by a 5,000 position loss in June. Manufacturing's loss of 21,000 positions was particularly notable, as the loss more than the April (-11,000) and May combined (-3000).
According to Trading Economics, the U.S. trade deficit increased to a three-month high in May 2016. While total exports decreased 0.2 percent, total imports increased 1.6 percent, marking the second consecutive month of nearly two percent gains in imports. While trade balancing isn't as simple as pure supply-and-demand, currency trends are one factor that could be causing manufacturing to suffer significantly. In recent weeks, the dollar has gained 3 percent against a "broad basket" of global currencies, further complicating a landscape in which US-produced goods are too expensive for many world markets, per The New York Times.
For the multinational firms referenced by Zandi, the dollar's continued climb in recent weeks isn't the best news. With particularly dramatic increases against the British Pound and the Euro, exports that are already expensive because of a strong U.S. dollar will now become even more prohibitive for global buyers, decreasing domestic demand for manufacturing. However, an article in The New York Times notes the "charge" behind the dollar over the past several weeks speaks volumes "about the alarming situations confronting other major economies."
Are Large Multinationals Going to Struggle Because of Brexit?
One of the most significant global events to occur in recent weeks is "Brexit," the vote for the United Kingdom to leave the European Union that took place on June 23, 2016, as reported by the BBC. While the aftermath of the decision that shook the globe isn't reflected in the June ADP National Employment Report, it's been an area of concern for both U.S. economists and HR leaders. Chair of the Board of Governors of the Federal Reserve System Janet Yellen predicted that Brexit "would negatively affect financial conditions and the U.S. economy," according to Morning Consult.
Although the true impact of Brexit will be reflected in the months to come, CNN Money notes that trade between the U.S. and U.K. constitutes just 0.5 percent of the U.S. economy. However, it is clear that the vote has triggered more than just a climb in the dollar's value against the pound and euro. The Wall Street Journal also reports there are signs of volatility in both U.S. and U.K. stock markets, including a drop in grain prices that could harm U.S. meat exports.
What's Next for the U.S. Job Market?
While small and midsized firms and the services sector fueled moderate job growth in June, HR leaders would be wise to take a slightly cautious outlook in the months to come. The continued strength of U.S. currency and global turmoil could spell delayed growth for the goods-producing sector and large organizations. While Brexit's impact has yet to be really felt, many are choosing to join Zandi and other economists in bracing for several upcoming months of change.
To learn more about employment trends in the month of June, visit: ADP National Employment Report® (NER).
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