De minimis duty exemption closing is important, says KPMG's Diane Swonk

Key Concepts

• Transportation and Warehousing Jobs: Indicator of economic activity and potential vulnerability to tariffs.
• Dow Jones Transportation Average (DJT): Stock market index reflecting the performance of transportation companies, used as a leading indicator.
• Tariffs: Taxes imposed on imported goods, impacting trade and economic activity.
• Front-Loading: Importing goods ahead of tariff implementation to avoid higher costs.
• De Minimis Tariffs: Tariffs on goods below a certain value, impacting online retail.
• ADP Report: A report on private sector employment, used to gauge the labor market.
• Small Businesses (20-49 workers): Particularly vulnerable to tariffs due to limited margins.
• Revisions: Updates to economic data that can reveal trends missed in initial reports.
• Birth and Death Rate (of businesses): Indicator of the health and dynamism of the economy.
• Labor Hoarding: Retaining workers even during economic uncertainty due to difficulty in hiring.

Analysis of the Jobs Report

Transportation and Warehousing Sector

• Steve Liesman highlights the transportation and warehousing sector as an "at-risk" area in the jobs report.
• He presents a chart comparing transportation and warehousing jobs with the Dow Jones Transportation Average (DJT).
• Historical Trends:
  • Jobs fell after the 2000 recession and somewhat after the Great Financial Crisis.
  • During the pandemic, job losses were instantaneous with the DJT decline.
• Current Discrepancy: The DJT is declining, but transportation employment hasn't followed suit.
• Question: Is this a lag effect, similar to 2009-2010, where job losses follow a decline in the DJT?

Tariff Impact and Economic Dynamics

• The survey week for the jobs report was around April 12th, allowing some time for businesses to react to potential tariffs.
• Diane Swonk notes that shipments from China had come to a "virtual standstill."
• Front-Loading: Goods already on the water before tariff implementation were not subject to tariffs, potentially boosting activity during the survey week.
• Labor Hoarding: Companies may be retaining workers due to the difficulty of hiring in the current environment.
• Uncertainty vs. Panic: Businesses are uncertain about the future but are not necessarily panicking and firing workers.

De Minimis Tariffs and Online Retail

• Diane Swonk emphasizes the importance of de minimis tariffs, which are now in effect.
• Impact on Online Retail: These tariffs affect online retailers, particularly those based in China.
• Increased Costs: Shipments are being doubled in cost (from $100 to $200) in addition to the 145% tariffs on many online retail goods from China.

Small Business Vulnerability

• ADP Report Insights: While the ADP report doesn't forecast the jobs report, it provides valuable information.
• Decline in Small Businesses: The ADP report showed declines in businesses with 20 to 49 workers.
• Vulnerability to Tariffs: These small businesses are the most vulnerable to tariffs due to their limited margins.
• Data Lags: The jobs report may initially miss these small business trends, which are later revealed in revisions and birth/death rate data.

Conclusion

The jobs report presents a mixed picture, with potential vulnerabilities in the transportation and warehousing sector and among small businesses. The impact of tariffs, particularly de minimis tariffs on online retail, is a key concern. While front-loading and labor hoarding may be temporarily masking the full effects of tariffs, revisions to the data and the birth/death rate of small businesses will provide a clearer picture of the long-term impact. The discrepancy between the DJT and transportation employment warrants close monitoring to determine if a lag effect is in play.