What to Expect From the June Jobs Report

A question has hung over the American economy for the past month: Was the sharp slowdown in job growth in May just another soft patch in a recovery that has set records for its durability? Or was it a warning of more significant trouble?

Friday’s jobs report will help provide the answer.

Economists expect the Labor Department’s monthly report, which will be released at 8:30 a.m., to show that American employers added 170,000 jobs in June. That would be a substantial rebound from the disappointing total of 75,000 in May. (May’s figure will also be revised on Friday.) And it would suggest that the job market remained on solid footing, even if it lost some momentum since last year.

A second straight weak report, however, would spark fresh worries that trade tensions and other factors could be undermining the 10-year economic expansion. And it could raise the stakes for the Federal Reserve’s meeting this month.

“We have seen rapid declines like that in this recovery before,” said Martha Gimbel, an economist at the job-search site Indeed. “I think it’s really hard to figure out. Is this just another rapid decline that’s going to go away, or is this a decline we need to start worrying about?”

Here’s what to watch for.

There is no question that the job market has cooled. Employers have added an average of 151,000 jobs per month over the past three months, down from 233,000 in the final three months of 2018. The manufacturing sector, a major driver of growth in the first two years of President Trump’s term, is slowing down, and retailers are shedding jobs. Wage growth, though solid, is no longer accelerating.

What is less clear is whether that slowdown is anything to worry about. Tax cuts and government spending increases gave a temporary jolt to the economy last year, but the effects were always expected to fade. There has been no sign of an increase in layoffs, which have been the most reliable early sign of a downturn in the job market.

“We’re still creating jobs,” said Lindsey Piegza, chief economist at the investment bank Stifel. “We’re still putting Americans back to work on a day-to-day basis, but we’re doing so at a significantly slower clip.”

By most measures, the job market is still fundamentally strong. The unemployment rate, 3.6 percent, is at a nearly 50-year low. Employers have added jobs for 104 consecutive months, easily a record. After such a long stretch of growth, a gradual cooling is hardly surprising.

What worries economists is the possibility that the slowdown will not be so gradual.

If the economy does shift down further in the months ahead, one likely culprit will be Mr. Trump’s trade war.

Hiring has already slowed in manufacturing, a trend that economists and industry executives attribute in large part to uncertainty surrounding tariffs and trade. Data from the Institute for Supply Management this week showed that the industry’s struggles continued in June, although the decline wasn’t as severe as some economists had predicted.

“Uncertainty remains very high for manufacturers and for companies with global exposure right now,” said Michelle Meyer, chief economist at Bank of America Merrill Lynch. “They’re still producing to meet demand, but they’re not looking to exceed that. They’re being very cautious.”

Policymakers at the Federal Reserve will be watching the report closely as they weigh whether to take steps to bolster the economy.

Jerome H. Powell, the Fed chair, has resisted calls from Mr. Trump and other critics — and even from some Fed officials — to cut interest rates. But he has signaled that he is prepared to act if the economy slows further. Investors have interpreted those comments to mean that the Fed will cut rates when it meets this month, although Mr. Powell has stopped short of promising to do so.

Friday’s report could help tip the scales in either direction. A weak report would all but guarantee a cut, economists said, perhaps by as much as half a percentage point. Even a relatively neutral report, or one containing conflicting signals, might be enough to push the Fed toward action. But an unambiguously strong report — solid gains in jobs and wages, perhaps paired with upward revisions to prior months — might keep policymakers on the sidelines until its September meeting or beyond.

The Fed’s complex calculus means that a good jobs report could be bad news for financial markets. Investors want — and expect — a rate cut in July. So a report strong enough to call a cut into question could disappoint investors and cause stocks to fall. The impact could be intensified by the low trading volumes of the holiday week, when many traders are on vacation.

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