Weakening manufacturing data in the U.S. reflects a “business confidence shock” triggered by the U.S.-China trade war, and shows that the economy is approaching the end of its current cycle. That means a slowdown in hiring is coming.

That’s according to Barry Knapp, managing partner at Ironsides Macroeconomics, who spoke with Yahoo Finance’s On the Move. “The next stage is a slowdown in labor hiring, labor investment. And the turnover of the labor market, which is more important than the net jobs add. It's the dynamism, because when the labor market is dynamic, people are quitting, finding new jobs. Wages go up, but productivity does, too,” said Knapp, a Wall Street veteran, did stints at Barclays, BlackRock and Guggenheim before striking out on his own last year.

Knapp highlighted Tuesday’s manufacturing report, which showed a contraction in factory activity and its lowest reading since June 2009. That’s only one example, he says, of a slowdown in capital spending.

“The entire positive business confidence shock, associated first with a Trump presidency and then with the passage of the Tax Cuts and Jobs Act, has been completely mitigated by the trade war,” he said, which has now flipped that confidence shock to negative.

It’s not only business investment. Knapp pointed out that consumer momentum has begun to slow, and that’s an alarm one prominent Wall Street economist is also sounding.

Steady decline in buying large household goods

“For the past year, we have seen a steady decline in US consumers’ interest in buying large household goods, i.e. washers, dryers, computers, TVs, furniture etc. This sentiment indicator has historically been a very good leading indicator of the business cycle. Add that to the rising risk of job losses in manufacturing, and the downside risks to consumer spending look even more significant,” Torsten Slok, chief economist at Deutsche Bank Securities, wrote in a recent report.

Slok says the unemployment rate — which the U.S. Labor Department will report Friday morning at 8:30 a.m. ET— is set to rise from August’s read of 3.7%.

Ahead of Friday’s jobs report, ADP reported Wednesday that private payrolls rose by 135,000 in September — the smallest advance in three months. A Bloomberg survey of economists predicts a gain in September non-farm payrolls of 147,000, with 130,000 of that in the private sector.

Julie Hyman is the co-anchor of On the Move on Yahoo Finance.

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