Despite starting October facing a debt ceiling problem, the news on the economic front just got a little bit better for the U.S.
Friday saw good news on the labor front for retail jobs in September, following the August report that saw retail trade jobs falling 28.5 percent on a seasonally adjusted basis. Also on Friday, President Joe Biden and the G-7 agreed on a new Global Minimum Tax (GMT) plan that would treat American multinationals more fairly and replace the contentious digital services taxes.
And finally, the Senate agreed to raise the debt ceiling through early December by $480 billion. Prior to the agreement, the U.S. debt limit was set at $28.4 trillion. Although only a temporary reprieve, at least lawmakers now have two more months to hash out an agreement to avoid a government default.
Retail jobs
After two months of little change, the retail trade sector saw employment gains of 56,000 jobs in September, despite the broadly disappointing Labor Department report.
For the month of September, apparel and accessories stores added 27,000 jobs, while general merchandise stores added 16,000, according to the report’s reading of uses U.S. Bureau of Labor Statistics data.
Retailers such as Macy’s, Target and Walmart have already started hiring for the holiday season. Many of those jobs are supply chain and fulfillment roles, and the retailers—particularly Macy’s and Walmart—plan to turn many seasonal roles into permanent full- and part-time jobs.
In general, nonfarm payrolls increased by just 194,000 in September. That’s 306,000 shy of the 500,000 economists expected. That’s in contrast to ADP’s report outlining a 568,000 increase in private-sector employment from August to September.
The Labor Department’s report doesn’t always jive with ADP’s. In fact, the two reports can differ based on how the data is calculated. The nonfarm report surveys include all employees who are paid. In contrast, the ADP report only counts active employees. That means that changes to the labor force landscape, such as a shift in temporary workers, can impact the monthly tally.
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There are two bright spots in the September jobs report. The unemployment rate fell to 4.8 percent from the expected 5.1 percent, reflecting a decline of 710,000 unemployed persons to 7.7 million. While the number of unemployed is down from the high during the end of February to April 2020, it’s still above the pre-Covid level of 5.7 million unemployed in February 2020.
The other point of good news is that the average hourly earnings for all employees on private nonfarm payrolls rose by 19 cents to $30.85 in September, following large increases in the prior five months. Companies in recent months have faced a labor shortage and many have raised hourly wages to attract workers.
While the September jobs report wasn’t exactly uplifting, The Conference Board’s senior economist Frank Steemers believes that the second consecutive month of lackluster job growth reflects the delta variant’s economic impact and a tight labor market.
“Today’s job numbers were collected in the first half of September when Delta cases were at their peak. If infections continue to decline over the coming months, job growth may pick up again, primarily in the in-person services industries,” Steemers said.
The tight labor market and rising wages will fuel inflation, Steemers said. “Hiring and retention difficulties could persist over the next several months. Some people continue to be fearful of catching the virus and are delaying a return to the labor market,” he added. “In addition, the federal vaccine mandate for large private employers may be a new barrier to both recruitment and retention as some workers will not be willing to take the vaccine or get regularly tested.”
Wells Fargo economists believe employment rates could improve rate in coming months. The 710,000 plunge in unemployed workers suggests some might look for work now that additional benefits have expired. Plus, declining covid infection rates could allay fears about returning to a place of business.
Global corporate tax agreement reached
Global leaders have found a way to scrap digital services taxes in favor of a new minimum corporate tax.
Countries have been trying to find ways to raise funds and boost their budgets. Digital services taxes have been a haphazard mix of rates across different countries that all seemed to target the biggest American tech firms. Raising taxes can reduce corporate tax evasion and provide a framework for a global uniform tax rate.
On Friday, 136 countries finally agreed to the Global Minimum Tax (GMT) plan during a Organization for Economic Cooperation and Development (OECD) meeting. Four others countries—Kenya, Nigeria, Pakistan and Sri Lanka—chose to abstain during the voting process.
Holdouts hampered negotiations. Getting low-tax countries such as Turkey—which has a 9 percent tax rate—and Ireland—at 12.5 percent—onboard paved the way to finalize the framework at Friday’s OECD meeting.
Under the GMT plan, multinational firms are taxed based on where they do business, instead of merely where their corporate headquarters is located. The new 15 percent corporate tax rate also puts an end to the tax-cutting race many other nations have fostered to attract corporations.
For now, each country must pass legislation to implement the agreement before it takes effect.
Initial talks sought a rate as high as 21 percent, but later discussions centered on “at least 15 percent.” Ireland, one the last holdouts, changed its position when “at least” was removed. The new rate is nominally higher than Ireland’s current tax level and would apply to multinationals doing business in the country with annual volume above 750 million euros (about $1 billion).