Manufacturing is a Bright Spot in a Subdued Jobs Report

MACUNGIE, Pa. — At the sprawling Mack Trucks factory here, the last of the workers laid off in 2016 after sales slowed down are back on the line, and for the first time in years, the company is hiring new employees.

The turnabout in the Lehigh Valley, whose shuttered factories inspired Billy Joel’s elegiac 1980s song “Allentown,” was evident more broadly on Friday, when the Labor Department reported that manufacturers nationwide added workers last month at the fastest pace in more than four years.

Hiring in other sectors was more muted, with the economy creating 156,000 jobs, fewer than expected and well off the much bigger employment gains earlier this summer. The unemployment rate edged up slightly to 4.4 percent, while wages barely grew.

Still, the latest payroll data underscores the striking rebound at American factories, which lost more than two million jobs in the recession, but have clawed their way back and recovered more than one million positions since 2010.

President Trump campaigned as a champion of domestic manufacturing, and promoted recent announcements by Foxconn and Toyota that they would build new domestic factories, but the bulk of those job gains came under Mr. Trump’s predecessor, Barack Obama.

Sentiment among both business leaders and consumers has improved markedly since Mr. Trump’s victory in November, though, and manufacturers have indeed stepped up the pace of hiring this year. A closely watched private survey released on Friday showed factory activity at a six-year high.

An uptick in consumer spending also elevated the Commerce Department’s latest reading on economic growth earlier this week.

Dennis Slagle, Mack’s president, said his company’s hiring reflected increased demand for its big trucks. “We’ve seen confidence rise,” he said, noting that truckers benefit whether shoppers do their buying online or at brick-and-mortar stores. “If you bought it, we brought it.”

Auto sales were down slightly in August, continuing 2017’s soft trend, but employment at vehicle and parts factories, which includes truck makers like Mack, managed to climb by 14,000 last month.

After dropping to 1,287 at the end of 2016 from 1,875 a year earlier, employment at Mack’s Macungie plant has rebounded to 1,800. To attract new workers, the company has set up tables at local job fairs, including one in May at Coca-Cola Park in Allentown, home of the AAA Lehigh Valley IronPigs baseball team.

The company has had a presence in the Lehigh Valley since 1905, when the Mack brothers moved truck production to Allentown from Brooklyn, where the company was founded in 1900.

It has endured even as giants like Bethlehem Steel, which once employed thousands of workers who turned hot metal into finished steel, vanished. And unlike many of its competitors, it builds both the truck cabs and components like engines and transmissions in the United States.

Mack is foreign-owned — by the Volvo Group of Sweden — but the parent company recently completed an $84 million project to modernize and expand the Macungie factory. Mack plans to roll out its first new truck line in about two decades on Sept. 13.

“Labor relations are good enough that they were willing to spend that much money,” said Edward Balukas, president of Local 677 of the United Automobile Workers union, which represents production line employees at Mack. Salaries start at $18.75, according to Mr. Balukas, rising to $27 after six years, and the jobs come with a full benefit package and retirement plan.

That top pay rate is a bit higher than the national average hourly wage of $26.39, which rose by just 0.1 percent in August, less than expected and below July’s 0.3 percent increase.

One explanation for stagnant wage growth — even with low unemployment and steady hiring — is automation, as workers like retail store clerks, tollbooth operators and bank tellers are forced to move on and take whatever jobs they can find.

Robots really are not much of a presence at Mack, however, where workers in T-shirts and shorts clamber atop newly finished chassis to attach hulking cabs that move on an overhead belt.

Big rigs represent a major investment for buyers — prices start at about $115,000 and can run as high as $250,000 for a dump truck. And their customized nature makes it hard to automate production, said Jonathan Randall, senior vice president for North American sales at Mack.

“We build fleets one at a time,” he explained. “It takes skilled human beings to do that.”

Mack also resolved to keep nearly all of its production in the United States, rather than move some south of the border, as competitors like Navistar have done.

“It’s not a bed of roses when you go down to Mexico,” said Mr. Slagle, Mack’s president. “We feel this is the place to be.”

Mack’s position is not new, but it does come as pressure mounts from the White House on domestic manufacturers to stay put. On Friday, negotiations between the United States, Mexico and Canada to restructure the North American Free Trade Agreement resumed in Mexico City, and the prospects are unclear.

The jump in manufacturing last month, along with construction, stands in sharp contrast to some service sectors, where job growth was much less impressive.

Retailers shed 900 jobs, confirming the assault on traditional stores by online retailers. Leisure and hospitality, which has been especially robust in recent months, added just 4,000 positions, while the public sector lost 9,000.

Those losses help explain why August’s overall payroll increase fell well short of the 180,000 gain that economists on Wall Street had been expecting. But few took it as a sign of more fundamental weakness, especially because the initial August figure has come in below expectations in five of the last six years, only to be revised higher in some cases.

“In months where there are anomalies like this, we look at the three-month average, which is 185,000,” said Michael Gapen, chief United States economist at Barclays. “The labor market is healthy, but we still have the conundrum that solid employment gains haven’t translated into faster wage growth.”

One wild card in the second half of 2017 will be gasoline prices. The surge following Hurricane Harvey’s devastation in Texas will leave less money for consumers to spend on other goods and services.

On Friday morning, the average price for regular gasoline nationwide was $2.52, a 7-cent increase from Thursday. Prices have risen 15 cents a gallon in the last week, and the current price is 30 cents above the national average for regular gasoline a year ago. Over the course of a year, every penny increase is equivalent to a $1 billion tax on consumers.

But Wall Street was happy with the report — benchmark indexes closed up 0.2 percent Friday — as the slowdown in hiring and minimal wage growth mean the Federal Reserve is likely to stick to its promise to raise interest rates only gradually.

“For the economy, it’s steady as she goes, but for the markets, it’s Goldilocks,” said Torsten Slok, chief international economist at Deutsche Bank, referring to the not-too-hot, not-too-cold August payroll increase.

Traders now assume a 30 percent chance of a rate increase when Fed policy makers meet in December, down from a 50 percent chance a few weeks ago. The Fed is set to meet later this month, but is not expected to raise rates.

Like many economists, Mr. Slok does expect the Fed to move at the end of the year, even if market participants are betting otherwise. “There’s no sign of inflation, which keeps the Federal Reserve on hold in terms of interest rate hikes, and it suggests stocks should keep doing well,” Mr. Slok said.

Originally published: https://www.nytimes.com/2017/09/01/business/economy/jobs-report-unemployment.html

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