Hiring was weak in May as employers added 75,000 jobs, bolstering the Federal Reserve’s case for cutting interest rates as soon as this month, a possibility that has juiced markets in recent days.
The unemployment rate was unchanged at a 50-year low of 3.6%, the Labor Department said Friday.
Economists surveyed by Bloomberg expected 178,000 job gains.
Adding to the concerns: Payroll gains for March and April combined were revised down by a total 75,000. March’s additions were revised from 189,000 153,000, and April’s, from 263,200 24,000.
The May employment report was highly anticipated because of recent speculation that the Fed could cut its benchmark rate for the first time in a decade as soon as this month, especially if the economy softens. The jobs report typically provides the best real-time gauge of the labor market and economy.
In recent days, Fed policymakers have indicated they’re prepared to trim rates if necessary, noting concerns that the recent escalation of U.S. trade battles with both China and Mexico could further impede already slowing growth. A stock market that was tumbling amid the trade jitters has rallied since Fed officials have raised the possibility of rate cuts, which tend to increase consumer and business borrowing and prod investors to move money from bonds to higher-yielding stocks.
After the jobs report was released, markets reckoned the chance of a Fed rate cut at the Fed’s June 18-19 meeting rose to 31%, according to CME Group. The odds of a cut at the Fed’s late July meeting remained 56%. The yield on the 10-year Treasury bond dipped 0.06 basis points, or 2.8%, to 2.06%, nearing the lowest level since 2017.
Yet the Fed faces difficult choices. Monthly job numbers an be volatile. Payroll growth generally has been strong this year, with average gains of about 200,000 a month.
Meanwhile, stocks advanced Thursday on the news that the U.S. and Mexico made progress in talks on President Trump’s demand that Mexico do more to stem the flow of Central American illegal immigrants through the Mexican border. The White House, however, has not yet backed off its threat to impose tariffs on all Mexican imports on Monday if Mexico doesn’t take more aggressive action.
More broadly, job growth is expected to slow from 223,000 in 2018 to about 175,000 this year as the effects of federal tax cuts and spending increases fade. And the historically low unemployment rate has made it tougher for businesses to find qualified workers, a dynamic that’s also likely to crimp job growth.
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Wage growth slows
Average hourly earnings rose 6 cents to $27.83, pushing down the annual gain from 3.2% to 3.1%.
Yearly pay increases began edging over 3% in the second half of 2018 but haven’t accelerated beyond that, even ticking down recently, helping keep inflation subdued and the Fed from raising rates. Wage growth and inflation that pick up could pose a dilemma for a Fed that now seems more inclined to reduce rates in response to the trade standoff and slowing economy.
Jobs, Trump and the 2020 election
Trump’s moves to ratchet up the U.S. trade fights with China and Mexico likely occurred too late to affect the May jobs survey, which was conducted the week that includes May 12, Goldman Sachs wrote in a note to client. But trade jitters that dampen business hiring and investment could begin to take a political toll on Trump as the 2020 presidential campaign heats up.
“What really matters is if there’s a trend,” says Ron Bonjean, a GOP strategist who worked at the Commerce Department under President George W. Bush. “We have to see several months or more of a downward cycle of job growth in order for it to be called a trend and for that to be raised as a serious issue for Trump’s presidential re-election.”
Industries that are hiring
Professional and business services led the job gains, with 33,000. Leisure and hospitality added 26,000; health care and social assistance, 24,000; and construction, 4,000.
Manufacturing, which has been hurt by a slowing global economy and the trade conflicts, had another lackluster month, adding just 3,000 jobs. And retailers, grappling with shoppers’ shift to online purchases, lost 8,000.
Contributing: Michael Collins