This post is by Jeffrey Sparshott from Real Time Economics
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The May employment report wasn’t pretty. The U.S. added just 75,000 jobs and the prior two months were revised down by a combined 75,000. Investors may expect the softer jobs data, alongside some other so-so economic indicators and heightened global trade tensions, to push the Federal Reserve toward cutting interest rates. Jeff Sparshott and Greg Ip here to take you through some of the numbers.
A Reason to Worry, a Little
May’s surprisingly soft 75,000 rise in nonfarm payrolls is, fundamentally, fine: it’s about what the U.S.’s slow-growing population can sustain over the long run. Claims for unemployment insurance and confidence surveys point to solid labor demand inconsistent with a recession. Yet there are reasons to worry, a little:
- May’s downshift in job creation is echoed by surveys of manufacturing activity. And more than tariff jitters are at work: Construction-job creation is anemic despite plunging mortgage rates.
- The unemployment rate edged up to 3.62% from 3.58%. Yes, that’s small, but it’s the wrong direction. So while the U.S. is probably simply slowing to normal, from above-normal, growth, the risk of something worse is material.
The May employment report adds to signs the U.S. economy was cooling even before a recent escalation in trade tensions, which could make it easier for Federal Reserve officials to justify an interest-rate cut at their meeting later this month or in July, Nick Timiraos writes.
- Fed officials are looking for evidence that weakness in the manufacturing sector, which faces stress from slower global growth and escalating trade tensions, is seeping into the economy’s much bigger service sector.
- Perhaps most troubling is the news that average hourly earnings rose 3.1% over the prior year, down from 3.2% in April and a recent high of 3.4% in February. That suggests a cooling labor market.
- Fed officials next meet June 18-19. A rate cut seemed a remote possibility until recent days, when President Trump escalated trade tensions with Mexico.
- The decision isn’t often an easy one because by the time any slowdown is obvious in the data, rate cuts can be of less help to a contracting economy.
- After Friday’s report, the probability of a rate cut in June implied by futures markets rose to around 35%, from 20% on Thursday, according to CME Group. This means investors see a move this month as more likely, but not the most likely outcome.
It’s a Little Ugly
Need more evidence the labor market has downshifted? It’s not drawing as many people off the sidelines. The share of adults in their prime working years who are employed or seeking a job fell to 82.1% in May, the lowest level since September 2018. The rate had edged higher late last year, raising hopes a strong job market and low unemployment was pulling in workers. But now those gains have largely retreated.
One factor could be wages. Wage growth has been solid, but it’s no longer accelerating. Americans judging between seeking a job and other pursuits—from watching TV to caring for kids—may need to see more money before applying. —Eric Morath
U.S. manufacturing boomed in 2008. Now it seems to be sputtering. Factories added just 3,000 jobs in May and a mere 5,000 over the past three months. Companies in the sector, which often source materials from overseas and frequently sell to foreign markets, tend to be more exposed to the global economy and, more recently, trade tensions.
Reasons Not to Worry
There’s also some good news. The unemployment rate held at a near 50-year low of 3.6% in May. A broader measure of unemployment, which includes discouraged workers who have given up searching for work and Americans stuck in part-time jobs but who want to work full-time, hit the lowest level since December 2000. —Harriet Torry
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What Economists Are Saying
“The cracks that had been showing in other data on the economy became very apparent in the May jobs data.” —Jim Baird, Plante Moran Financial Advisors
“Once one lifts up the hood on this clunker of a jobs report, the data is even bleaker as the softness that has defined employment in manufacturing has spilled over into the service sector.” —Joseph Brusuelas, RSM US LLP
“This looks like an economy that is slowing down.” —Martha Gimbel, Indeed Hiring Lab
“The average pace of job growth over the last three months (at 151,000) is hardly alarming. It speaks to a slowdown in the domestic economy but there’s no suggestion of demand falling off a cliff.” —Brian Coulton, Fitch Ratings
“Uncertainty regarding future trade policy, in addition to the actual costs imposed by tariffs, may be making businesses, especially those with exposure to international markets, hesitant to expand employment.” —Beth Akers, Manhattan Institute