Worst May Be Yet to Come for U.S. Jobs as Trade War Intensifies
The slowdown in U.S. hiring seen in Friday’s jobs report could get even worse.
(Bloomberg) -- The slowdown in U.S. hiring seen in Friday’s jobs report could get even worse, as President Donald Trump’s still-escalating trade war threatens further blows to employers.
The May payroll figures -- which missed all economist estimates and included steep downward revisions -- translated into a four-month average jobs gain of 127,000. That’s the slowest since 2012, and compares with an average of 201,000 over Trump’s first two years as president.
The numbers showed strains beyond goods-producing industries that are typically on the trade front-lines. A measure of the breadth of job-creation fell to a two-year low, and service providers also saw the fewest gains in that period, with weakness from health care to retail. As for manufacturing, it added an average of 3,000 jobs in the past four months -- the worst numbers since Trump took office pledging to revive America’s factories.
The report -- which also included the slowest wage gains since September -- suggests trade tensions were already hitting the labor market, and could have a bigger effect should Trump follow through on threats of more tariffs on imports from China. Investors increased bets that the Federal Reserve will cut interest rates to contain the fallout.
“The heightened degree of uncertainty related to the trade war has likely encouraged some employers to be a bit more cautious in this environment, and hold back some hiring plans until they have a better idea of how things are going to progress,” said Michelle Meyer, head of U.S. economics at Bank of America Corp.
“My concern is that in the coming months the uncertainty shock gets bigger and we see a larger impact,” Meyer said.
But the slowdown in hiring reflects more than just tariffs. Concern about slowing growth in the U.S. and abroad may be giving companies another reason to pull back, said Sam Bullard, senior economist at Wells Fargo & Co.
“We’re definitely late in the economic cycle and maybe that is also weighing upon firms not wanting to get too far ahead of their skis,” Bullard said. “There’s certainly a lot of uncertainty outside the U.S. as well, not just trade related, but just softening economic activity numbers in China and Europe.”
What Our Economists Say
“Hiring in sectors directly related to international trade has cooled over the past several months, and the downdrafts now appear to be stretching into related industries. More broadly, rattled economic confidence appears to be resulting in a cautious approach to hiring across the private sector.”
-- Carl Riccadonna and Yelena Shulyatyeva, economists
Click here for the full note.
It’s possible that one-time events hit the labor market last month. Flooding in the central U.S. could have reduced the May payroll number by 40,000 jobs, Kevin Hassett, the departing chairman of Trump’s Council of Economic Advisers, told Bloomberg Television.
While the Labor Department didn’t mention any special weather impact, Bullard said it’s “reasonable” that the flooding lowered the May numbers following an outsize bump in construction jobs in April.
Still, the slowdown means “you’re probably going to have less money in people’s pockets,” Bullard said. “That translates into most likely lower consumer spending growth as well.”
U.S. stocks jumped on Friday, amid expectations the Fed will move to boost growth in line with Chair Jerome Powell’s comment this week that the central bank will “act as appropriate to sustain the expansion.” Most Fed watchers said there’ll probably be no interest-rate cut before July, allowing time for more data to come in.
Meyer said markets will be watching for a sustained downtrend in indicators, like the Institute for Supply Management’s non-manufacturing survey, as well as in payrolls.
“If that becomes clear, then I think we should prepare for more significant slowing in the economy,” she said.
--With assistance from Katia Dmitrieva.
To contact the reporter on this story: Reade Pickert in Washington at epickert@bloomberg.net
To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Ben Holland
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