The U.S. stock market has demonstrated signs of recovery, but the Midwest jobs market is in decline as the manufacturing sector struggles to rebound.
According to data from FRED, total nonfarm job openings in the Midwest census region have dropped to 2010 levels, a region that almost directly reflects the state of the U.S. manufacturing industry.
Stock market remains vulnerable due to manufacturing
Based on the official information published by the U.S. Department of Labor and the Bureau of Labor Statistics, the unemployment rate in the state of Michigan has slightly increased since March 2019.
Nonfarm wage and salary employment, most of which are attributed to manufacturing-related jobs, has dropped from 0.8% to 0.4% in the past six months, since April.
Manufacturing, in particular, has seen salary employment plunge from 1.4% to an expected 0.3%, by more than three-fold in less than a year.
The U.S. stock market has successfully maintained its momentum since the beginning of 2019, and strategists generally anticipate the momentum to be carried out heading into 2020 as the Fed sustains an accommodative stance towards a low benchmark interest rate.
However, there are concerns that the U.S. manufacturing sector is moving into a full recession territory that would require more than a partial trade deal with China for a swift short term recovery.
Up until 2018, the Midwest had shown a strong growing labor force, supplementing the upside movement of the U.S. stock market and the expansion of the U.S. economy.
At the time, despite the strength of the Midwest jobs market, analysts warned that the imposition of additional tariffs could place the growth of the entire region in jeopardy, presenting a roadblock in the improving sentiment around the stock market.
Global manufacturing decline isn’t helping the U.S.
Major markets like the U.K., South Africa, and China have seen a steep contraction in their respective manufacturing sectors, with the U.K. seeing a surprising negative growth rate for October.
The U.K. Office for National Statistics has released monthly manufacturing growth data which showed that in October, the nation’s manufacturing industry declined by 0.7%.
Europe has also touted the possibility of a new trade dispute with the U.S., which would apply significant pressure on both the U.K. and the U.S. in regards to manufacturing.
Bruno Le Maire, the Finance Minister of France, stated that Europe would retaliate against the U.S. and respond with sanctions without a settlement, emphasizing that such an action is not in the interest of the U.S. and Europe.
“I’m still in favor of a settlement. But the American administration must be aware that if there is not a settlement, Europe will not have any other choice but to retaliate and to put sanctions. It’s not in the interest of Europe to enter into a trade war with the U.S. and I strongly believe too that it’s not in the interest of the U.S.,’’ stated Le Maire.
Uncertainty isn’t helping
Due to improved sentiment, the financial markets are reflecting the likelihood of a partial deal with China to be established by the month’s end.
However, Veda Partners director of economic policy Henrietta Treyz said that the U.S. could potentially do far more than tariffs to achieve a deal it wants that includes restrictions on payment processors like AliPay.
If October ends without a partial deal, the manufacturing sector is likely to see further slowing of jobs growth that may build increasing sell pressure on the stock market.