Watch CNBC's full interview with KPMG's Diane Swonk

Key Concepts:

• Transportation and Warehousing Job Market
• Impact of Tariffs on Small Businesses
• De Minimis Tariffs
• Labor Market Softness
• Hiring Freezes and Layoffs
• Supply Chain Disruptions
• At-Risk vs. Strong Job Sectors

1. Transportation and Warehousing Job Market

• Decline in DJT vs. Employment: Steve Liesman presents a chart comparing the Dow Jones Transportation Average (DJT) with transportation and warehousing employment.
  • Past Trends: Jobs fell after the 2000 recession and somewhat after the Great Financial Crisis. During the pandemic, job losses mirrored the DJT decline.
  • Current Discrepancy: The DJT is declining, but transportation employment hasn't followed suit.
  • Question: Is this a lag similar to 2009-2010, where stock declines precede job losses?
• Vulnerability: Diane Swonk emphasizes that transportation and warehousing are vulnerable sectors.
• Trucking Industry: There are approximately 3.5 million truckers in the US, indicating a potentially significant impact if the sector is affected.

2. Impact of Tariffs on Small Businesses

• Survey Week Context: The survey week was around April 12th, allowing some time for businesses to react to potential tariffs.
• Small Business Vulnerability: Diane Swonk highlights that businesses with 20-49 workers are most vulnerable to tariffs due to smaller margins.
  • Data Lag: These businesses are often missed in initial surveys, with data appearing in revisions.
  • Birth and Death Rate: The fate of these smaller firms will determine future job gains.
• Exemption Access: Small businesses lack the resources to request tariff exemptions, unlike larger corporations.
• Resilience: Some smaller clients, like those of Valley Bank, may be resilient due to limited tariff exposure.
• Component Manufacturers and Retailers: Small manufacturers using overseas components and retailers (e.g., toy stores) are particularly vulnerable.
• Significant Employment: Businesses with 1-49 employees account for 43% of all employees in the ADP universe (58 million out of 133 million), indicating substantial vulnerability.

3. De Minimis Tariffs

• Implementation: De minimis tariffs are kicking in, affecting online retail.
• Impact on Online Retail: These tariffs will impact online retailers, especially those based in China.
• Cost Increase: Shipments are seeing cost increases from $100 to $200, in addition to 145% tariffs on many online retail goods from China.

4. Labor Market Softness

• Underlying Softness: There is an underlying softness in the labor market with limited margin for error.
• Hiring and Quit Rates: The pace of hiring and quit rates are low.
• Layoffs: Layoffs are still not high but are starting to pick up.
• Warn Notices: Warn notices at the state and local level are increasing.
• Hiring Freezes: Companies are freezing hiring or considering layoffs.
• Impact of Freezes: Prolonged hiring freezes can lead to declines in employment numbers.

5. Recent College Grads

• Hiring Decline: New York Fed data indicates a decline in hiring for recent college grads in Q1.
• Internship Listings: Internship listings tracked by Indeed are at a six-year low.
• HR Role Decline: Evan Stone noted a significant drop in listings and recruitment for HR roles, a potential leading indicator for employment.

6. Permanent Job Losers and Long-Term Unemployment

• Permanent Job Losers: The number of permanent job losers has increased.
• Long-Term Unemployment: The number of people unemployed for 27 weeks or longer is up 32% from 2019 levels.
• Re-employment Difficulty: It is much harder to find a job once you lose it.

7. Supply Chain Disruptions

• Critical Month: Supply chain executives believe this month (May) is critical for determining the impact of tariffs.
• China Trade Deal: The market is closely watching whether China will come to the table on a trade deal.
• Time Sensitivity: There is a feeling that there is a limited window (early June) to change policy on tariffs.
• Baked-In Damage: Some believe the damage from tariffs is already "baked in."
• Shipping Delays: Ships need to be loaded and sail, which takes about six weeks, so there will be some damage regardless.

8. At-Risk vs. Strong Job Sectors

• At-Risk Sectors: Transportation and warehousing, leisure and hospitality, and manufacturing are considered at-risk.
• Strong Sectors: Health care (+51,000 jobs) and private education (+11,000 jobs) are areas of strength.
• Fiscal Uncertainty: Uncertainty about fiscal policy and budget issues could impact health care and private education.

9. Key Arguments and Perspectives

• Front-Loading Argument: The initial strength in the job market may have been due to front-loading ahead of tariffs.
• Dynamic Economy: The economy is dynamic and has the ability to change.
• Worker Retention: Companies are retaining workers due to previous hiring difficulties.
• Uncertainty vs. Panic: Uncertainty doesn't necessarily lead to panic or immediate firing.
• Lagged Impact: The impact of tariffs and economic changes may be lagged, with effects appearing later in the data.

10. Notable Quotes

• Diane Swonk: "Shipments from China come to a virtual standstill."
• Diane Swonk: "Those are businesses that are small businesses that are the most vulnerable to tariffs going forward. And they have the least amount of margins."
• Steve Liesman: "There's apparently 3.5 million truckers in this company in this country, which explains the popularity of trucking music, of course."

11. Technical Terms and Concepts

• Dow Jones Transportation Average (DJT): A stock index that tracks the performance of transportation companies.
• De Minimis Tariffs: Tariffs on goods below a certain declared value.
• Warn Notices: Notices required by law when companies plan mass layoffs.
• ADP Report: A report on private sector employment.
• NFIB: National Federation of Independent Business.

12. Synthesis/Conclusion

The US labor market is showing signs of underlying softness and vulnerability to external factors, particularly tariffs. While initial job numbers may have been boosted by front-loading, the impact of tariffs is expected to be felt more acutely by small businesses and in sectors like transportation and warehousing. Hiring freezes, increasing layoffs, and a decline in opportunities for recent graduates further indicate a potential slowdown. The coming month is critical for determining the extent of the damage, with the market closely watching for progress in trade negotiations with China.