UBS On-Air: Paul Donovan Daily Audio 'Hints of labor market weakness?'
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Good morning. This is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 6.30 in the morning London time on Thursday, the 3rd of July. Because the United States is taking time off tomorrow to celebrate being the minority of Britain's North American colonies that declared independence, today we get the US employment report. The US labour market has appeared somewhat fragile. Policy uncertainty is clearly worrying firms.

Even Republican-leaning sentiment surveys focus on this. Worried firms may not fire, but they are certainly less likely to be hiring. There is a hint that the employment data may be weak today as well. U.S. presidents are normally shown the data a day before publication when the final numbers are ready. Yesterday evening, U.S. President Trump put out a social media post calling for the Fed chair to resign.

the timing is certainly suspicious. Of course, the rise in US unemployment would have more to do with wild swings in policy and the largest tax increases in modern economic history than anything the Fed has done per se. On the tax side, the US did announce a trade agreement with Vietnam.

Vietnam's offer of 0% tariffs on US imports, which was made three months ago, has finally been accepted by the United States. The US will tax its citizens 20% for goods from Vietnam, its sixth largest trading partner, and 40% for goods deemed to have passed through Vietnam without much being done to them. That might matter to China.

China ran rings around Trump's first term trade taxes by rooting about 30% of its trade via third party countries in order to avoid US consumers being taxed. Trump suggested that by accepting Vietnam's 0% tariff offer, Vietnamese consumers may like to buy US made sports utility vehicles.

In 2023, the average personal income of a Vietnamese employee was just over $3,500 a year. That's the equivalent of somebody in the bottom 3% of US income distribution. The bottom 3% of US society is not noted as being big sports utility vehicle buyers. We also get May US trade data. This has never normally concerned markets, but it is a concern now.

Bear in mind that some of the imports into the States in May will not have been subject to the April trade taxes. If goods were already on their way to the United States when the 4th of April taxes were imposed, they are not then subject to those taxes.

Given how long it takes the penguins of the herd of McDonald Islands to ship to the United States, some of their vast amount of exports would have arrived in May. The same thing applies to goods from Asia and Europe. For the rest of the world, there is a barrage of survey and business sentiment evidence jumping up and down with all the poise of a three-year-old toddler having a temper tantrum and demanding, look at me. Do not bother looking at it. It only encourages them. That's all for today. Have a good day.

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