(Bloomberg Opinion) -- Give credit where it's due. As manufacturing slows amid the trade war with China, consumers and services industries have kept the U.S. economy growing.
As last week's jobs report showed, that dynamic is playing out in wage growth as well, with service-worker pay gains accelerating even as goods-producing earnings growth lags. Rather than dragging down the U.S. economy, the trade war may merely be masking a self-sustaining economic expansion that people have been waiting for most of the decade.
The stall in wage growth for laborers in industries like construction and manufacturing is a turnabout from President Donald Trump's first year in office, when pay increases for those workers rose to almost 4%, the highest level of the expansion. In 2017, you could be forgiven for thinking that something about the Trump presidency really was shifting the economic structure of the U.S. to favor blue-collar workers. Maybe Trump's election and the prospect of the Tax Cuts and Jobs Act made employers more willing to pay up for manufacturing and construction workers in anticipation of faster economic growth. Or perhaps Trump's timing was just pure luck and he was benefiting from the same rebound in growth that we saw around the world after the mid-decade global industrial downturn.
But during the past 18 months it's become clear that's no longer the case. Maybe the cyclical rebound in global growth that was so good for manufacturing workers never was sustainable. Maybe employers miscalculated when they projected an investment surge after Trump's election and tax cuts. Or maybe this is self-imposed pain by the Trump administration as it escalates the trade war with China, with manufacturing workers bearing the brunt of it as business investment declines. What we know is that since April 2018, year-over-year wage growth for goods-producing workers has decelerated from 3.8% to 3.2% even as job growth outpaces the rise in the working-age population and as overall wage gains accelerate.
What's interesting is that there's no similar sign of a pay slowdown for the much larger service sector, made up of everything from cashiers to investment bankers. Since April 2018, wage growth for service workers has accelerated from 2.5% to 3.6%, the fastest rate in a decade. August's month-over-month increase of 0.5% was the biggest increase in more than eight years.
This two-speed labor market makes for a messy narrative, with labor-market conditions stagnant or deteriorating for the 21 million manufacturing workers, while they continue to improve for the 108 million service-industry workers.
The Job Openings and Labor Turnover report, which looks at changes in job openings, hires, quits and separations, on Tuesday contained more good news. The report showed that the quits rate reached an 18-year high in July, a sign that workers continue to feel pretty confident that they can quickly find new work despite a flurry of negative headlines. The sharp increase in consumer credit in July also showed that Americans are more confident than is often appreciated.
What clearly has people worried is the possibility that the slowdown in global growth and the escalation in the trade war will unnerve consumers and spill over from domestic manufacturing to the broader services sector. A more optimistic scenario worth considering is that any negative headwinds from the trade war are doing little to hold back a durable U.S. expansion, driven by rising service-worker wage growth and robust consumption. Although higher prices on consumer goods will pinch the budgets of service workers, this should be offset by 3.6% wage growth, low oil prices and the continuing decline in interest rates.
More challenging times for manufacturing workers may still drive the national political debate as the U.S. heads into a presidential election year. But the resilience of America's consumers shouldn't be ignored, and their confidence rests on a strong labor market.
To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.
©2019 Bloomberg L.P.