-
Average hourly earnings rose by 0.2 percent, the same rate as in April. Over the last 12 months, earnings have risen by a solid 3.1 percent.
The Takeaway
The latest report was a disappointing showing that will stoke fears the economy is softening as the Trump administration’s trade war with China and potentially Mexico escalates.
The Federal Reserve has signaled that it would consider a rate cut in the event of economic weakness, and May’s data is likely to be an important factor in their decisions.
“This gives us a real sense of deceleration in the U.S. economy,” said Diane Swonk, chief economist at accounting firm Grant Thornton. “We knew this was occurring, but this could be a summer of discontent. It also gives the Fed a green light to cut rates.”
Most analysts expect the economy to slow in the current quarter, after a growth rate of 3.1 percent in the first three months of the year. Both retail sales and factory orders declined in April, a sign that consumers and businesses are growing more cautious.
However dramatic the fall off in hiring was in May, it’s part of a larger trend suggesting that the labor market has cooled from last year, when tax cuts provided a short-term lift. In the first five months of 2019, the economy added an average of 164,000 jobs, down from an average gain of 223,000 for all of 2018.
The retail sector, which has been battered by the rise of ecommerce, continued to lose jobs in May. Employment fell for the fourth month in row and since January the sector has given up 50,000 jobs.
The share of Americans working or looking for a job was unchanged at 62.8 percent. Some economists had thought that number would rise as people were lured back into the labor market by signs of growth earlier this year.
Friday’s report also revised employment data for April and March downward by a total of 75,000 jobs.
“Over all, the economy is on a fragile footing,” said Lindsey Piegza, chief economist at the investment bank Stifel. “We’re still talking about solid growth at the start of the year but that’s in the rearview mirror. The name of the game is uncertainty.”
Trade Trouble
President Trump’s escalating trade war with China and the possibility of new tariffs on Mexican imports have unsettled the financial markets. Analysts are parsing the data for any sign that his policies are hurting the economy or are making employers more cautious about adding workers.
“The May jobs report gives us a taste of what’s ahead if these trade threats continue to escalate,” said Scott Anderson, chief economist at Bank of the West. “Hiring faded across the board in May. This doesn’t appear to be a one-month pattern.”
Michelle Meyer, chief United States economist at Bank of America Merrill Lynch, said she was evaluating job creation in the goods sector, relative to hiring in service industries. “If global weakness or the trade war filters in, it’s going to have a bigger impact on the goods side of the economy,” she said.
Indeed, hiring in goods-producing industries like manufacturing, mining and logging, and construction slowed to a crawl in May, while the services sector showed vigor. The professional and business services category registered a 33,000 increase in payrolls while health care added 24,000 jobs.
Ms. Meyer’s economic forecast calls for growth to slow to less than 1.5 percent in the second half of the year.
Not all tariffs are created equal, said Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. The threat of new duties on Mexican imports poses different risks than the tariffs imposed on China.
The China tariffs have been building for months, but many business leaders believe Mr. Trump could reach a deal with President Xi Jinping.
“The shift to Mexico was totally unexpected and it caught people by surprise,” Mr. Bradley said. That effect, he said, was heightened because it came in a statement from the White House, “rather than as an aside to the press or a social media post.”
Fed Watch
For policymakers at the Fed, who are meeting later this month, the May numbers could be significant. On Tuesday, Jerome H. Powell, the central bank’s chairman, hinted that policymakers were prepared to cut rates if the trade war hurt the economy.
Until relatively recently, the expectation was that the Fed would continue raising its benchmark interest rate, something it started doing in December 2015. The Fed changed course in January, with Mr. Powell suggesting that very modest inflation and weakness in Europe and China warranted a neutral stance.
The stock markets took Mr. Powell’s remarks on Tuesday as a sign that the next Fed move might be a rate cut, prompting a rally. The weak showing for May will only fuel speculation that a rate cut could be imminent, perhaps as early as the central bank’s next policy meeting on June 18 and 19. The S&P 500 was up slightly after Friday’s report.
Recession Fears Are Back
After government reports showed substantial employment gains in March and April and a growth rate of more than 3 percent in the first quarter, it appeared that fears of a recession were overdone. Now those concerns are back.
Bond yields recently dropped to their lowest level since 2017. This isn’t what is supposed to happen when the economy is strong. During good times, the interest rate on government bonds usually rises, as investors plow their money into riskier assets. Plunging bond yields are a sign that investors are worried that growth is about to falter.
Crude oil prices, which typically rise when traders expect the economy to charge ahead, are down about 20 percent since late April.
The current economic recovery has defied recession predictions several times. This month, the current expansion tied a record for longevity with the recovery of the 1990s.
Nevertheless, Carl Tannenbaum, chief economist at Northern Trust, puts the risk of a recession higher than at any times since the financial crisis of 2008. “They say that policy errors, not old age, end expansions, and the steps taken on the trade front in the last five weeks fall under that,” he said.
Small Is Beautiful
At Glassdoor, the jobs site, new listings for positions at small employers are outpacing activity at the biggest companies. Hiring at businesses with 50 or fewer employees is up 22 percent from a year ago, while job postings are down 3 percent at companies with more than 5,000 employees.
“If you are looking for sectors that would slow hiring because of uncertainty today, it would be large employers,” said Andrew Chamberlain, chief economist at Glassdoor. “Small companies are doing business locally.”
The Chicago-based technology and logistics company ShipBob isn’t tiny — it has about 500 employees — but it has been hiring at a furious pace. The company helps online retailers offer two-day shipping — vital if they want to keep up with Amazon and other large retailers. It also offers systems that let clients track inventories and route orders to the nearest warehouses.
Not that it’s easy to find new workers. “It’s a very competitive market,” said Lauren Alford, director of recruiting and onboarding at ShipBob. To attract white-collar employees, ShipBob offers an unusual perk — unlimited time off.
“People don’t abuse it,” said Kristina Lopienski, content marketing manager at ShipBob. “We are offering that flexibility if something comes up personally. We’re not watching you clock in and clock out.”
In addition to hiring salaried employees at its Chicago headquarters, ShipBob has been recruiting hourly workers at five fulfillment centers. In May, the company hired more than two dozen at headquarters and over 50 at those warehouses.
That’s good news as new college graduates enter the job market, said Tom Gimbel, chief executive of LaSalle Network, a Chicago recruiting and staffing company.
Jobs that used to offer starting salaries of $30,000 to $40,000 are paying $40,000 to $50,000, Mr. Gimbel said. “I’m talking about liberal arts graduates, not engineering or accounting majors,” he said. Many entry-level positions in fields like sales, marketing and human resources routinely pay $40,000 to $45,000.
“My clients are investing,” Mr. Gimbel said. “They’re not afraid to pull the trigger.”
Nor are clients jittery about the recent volatility on Wall Street. “It mirrors the political landscape,” he added. “Just the way Trump creates chaos, people don’t see the chaotic market as an indicator.”