U.S. job increases lower than expected in May

Andrew Cummings
June 9, 2019

As the world's largest economy nears its longest expansion next month, the employment report may amplify rhetoric that Fed rate cuts are needed to support growth.

Worries about the economy's future come amid the Trump administration's increased use of tariffs on imports from China, Mexico, and other trading partners as a negotiating tool. The government also revised down the job growth for March and April by a combined 75,000.

Fed Chair Jerome H. Powell resurrected markets with just a few, carefully chosen words Tuesday, when he said the central bank would act if Trump's multi-front trade war mushroomed.

"Today's report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts", said Joseph Song, an economist at Bank of America Merrill Lynch in NY.

The unexpectedly steep slowdown was added to a sizeable downward revision to April, suggested the U.S.jobs engine is beginning to sputter after an extraordinary run in 2018. It was the second time this year that job gains dropped below 100,000.

Lawrence Yun, chief economist for the National Association of Realtors, said the fact that the USA had another month of job additions should help fuel demand for housing.

Job creation had been the one holdout against a slowing economy.

Then, on May 30, Trump threatened to place a 5 percent tariff on Mexican goods coming into the United States, opening another front on the trade war and tanking the stock market further. Talks are ongoing to prevent the duties from kicking in at 5 per cent on June 10.

"We are closely monitoring the implications of these developments for the USA economic outlook and, as always, we will act as appropriate to sustain the expansion", Fed Chair Jay Powell said Tuesday.

"The president's going to ... look at a bunch of options, and weigh all the options over the weekend", outgoing White House economic adviser Kevin Hassett told CNBC. They include Capital Economics' Hunter, who said investors are discounting signs that economic growth is slowing.

Manufacturing employment will be watched closely for signs of the impact of the tariffs on the economy.

"We still think Fed officials will want to see evidence of more sustained weakness before taking action", wrote Capital Economics senior United States economist Andrew Hunter in a note to clients.

'Fed officials are likely to remain cautious at the June meeting and keep all their options open, ' said Michael Hanson, head of global macro strategy at TD Securities in NY.

Topsy-turvy thinking is back in style on Wall Street.

In the last 12 months, wages have increased by 3.1 per cent.

In May, wages rose 3.1% from a year earlier, down slightly from last month's gain of 3.2%.

May's disappointing job growth was flagged by a report on Wednesday from payrolls processing firm ADP showing the smallest gain in private payrolls in nine years last month. But the worker shortage argument is somewhat undercut by moderate wage growth. Just three months earlier, wages had been rising at their fastest rate in a decade but gains have moderated since.

Or, an unexpectedly weak employment report could intensify concerns that after a healthy first quarter, the USA economy is actually stumbling. Still, it's below last year's pace of 225,000. The number of people not at work due to bad weather was 72,000 in May, a figure roughly in line with the same month in prior years.

The biggest job gains were seen in professional services and health care last month. The sector is struggling with an inventory overhang that has resulted in businesses placing fewer orders at factories.

Employers in the construction sector hired 4,000 workers in May.

Retail jobs fell by 7,600 for a fourth-straight drop while transportation and warehousing and nondurable goods also slipped.

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