US Economy: Could Weak May Job Report Numbers Signal A Slowdown?

Jeannie Matthews
June 11, 2019

Stocks extended their rally to cap their strongest week since November, as a weaker than expected employment report appeared to raise the odds of easier monetary policy from the Federal Reserve.

Last month's modest job growth followed a much healthier gain of 224,000 in April.

Investors were also encouraged by reports that the impending United States tariffs on Mexican goods may be delayed. That reading is wide of the 185,000 jobs that economists polled by Reuters were expecting, and well short of the roughly 100,000 jobs needed to absorb new entrants into the U.S. labour force. Manufacturing growth slowed to 3,000 jobs, as forecast, while construction employment expanded by 4,000, down from the prior month.

U.S. unemployment continued to hover near a 50-year low last month, remaining unchanged at 3.6 percent, while annual wage growth in May increased 3.1 percent. On the bright side, the USA unemployment rate was only at 3.6%. Stocks on Wall Street were trading higher.

But analysts maintain warned that the change fights may maybe well well undermine the financial system.

"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 Chairman Jerome Powell said Tuesday at a conference in Chicago.

"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.

Meanwhile, average hourly wages rose 0.2 percent compared to April to 27.83 US dollars, disappointing economists who had hoped for slightly stronger gains.

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Hiring cooled off considerably in May in what could be a warning sign that the USA economy is slowing down.

Cardillo said trade tensions may have made companies more hesitant to hire.

Automakers are cutting jobs and production as USA sales have slowed.

Average hourly pay rose just 3.1% in May from a year earlier, down slightly from last month's year-over-year gain of 3.2%. Those jitters could explain why hiring has been volatile over the last several months. The labour market thus far has been largely resilient to the trade war with China.

His statement has been widely interpreted to mean that the Fed will cut interest rates to counteract the negative economic effects of tariffs.

But others believe there is no justification for the Fed to cut interest rates, given that unemployment is at a record low and inflation remains subdued.

HORSLEY: Wages are still going up, although not quite so fast as they had been. Retail sales, factory output and home purchases have shown the economy struggling this quarter after better-than-expected growth in the first three months of the year.

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